UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 4, 1999
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to _______
Commission file number: 0-21876
FUNCO, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1609563
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10120 West 76th Street
Eden Prairie, MN 55344
(Address of principal executive offices)
(612) 946-8883
(Registrant's telephone number, including area code)
Check whether the registrant: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes _X_ No ___
On July 27, 1999, the registrant had 5,959,470 outstanding shares of common
stock, $ .01 par value.
<PAGE>
FUNCO, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
ITEM 1. Consolidated Financial Statements (Unaudited)
Consolidated Statements of Income - Quarter ended July 4, 1999
and June 28, 1998.............................................. 3
Consolidated Balance Sheets - July 4, 1999 and March 28, 1999..... 4
Consolidated Statements of Cash Flows - Three months ended
July 4, 1999 and June 28, 1998................................. 5
Notes to Consolidated Financial Statements........................ 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 7
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk........ 12
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings................................................. 12
ITEM 6. Exhibits and Reports on Form 8-K.................................. 12
SIGNATURES.................................................................. 13
- ----------
2 of 13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
FUNCO, INC.
Consolidated Statements of Income
(in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
--------------------------
July 4, June 28,
1999 1998
----------- -----------
<S> <C> <C>
Net sales ............................................ $ 42,505 $ 32,894
Cost of sales ........................................ 28,133 21,264
----------- -----------
Gross profit ..................................... 14,372 11,630
Operating expenses ................................... 10,805 8,402
General and administrative expenses .................. 3,035 2,514
----------- -----------
Operating income ................................. 532 714
Interest income ...................................... 52 120
----------- -----------
Net income before income taxes ................... 584 834
Income tax provision ................................. 229 334
----------- -----------
Net income ....................................... $ 355 $ 500
=========== ===========
Basic Earnings Per Share:
- -------------------------
Basic net income per share ........................... $ 0.06 $ 0.08
Weighted average number of common shares ............. 5,929,029 6,195,452
Diluted Earnings Per Share:
- ---------------------------
Diluted net income per share ......................... $ 0.06 $ 0.08
Weighted average number of common
and common equivalent shares ...................... 6,340,739 6,549,895
</TABLE>
SEE ACCOMPANYING NOTES.
3 of 13
<PAGE>
FUNCO, INC.
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
July 4, March 28,
1999 1999
--------- ---------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
- ------
Current Assets
Cash and cash equivalents ................................ $ 4,282 $ 8,550
Accounts receivable ...................................... 2,573 2,020
Inventories .............................................. 30,662 28,485
Prepaid expenses ......................................... 2,600 2,948
Current deferred tax asset ............................... 640 640
--------- ---------
Total current assets .................................. 40,757 42,643
Net property and equipment .................................. 12,040 11,334
Long-term deferred tax asset ................................ 1,064 1,064
Other assets ................................................ 102 99
--------- ---------
Total assets ................................................ $ 53,963 $ 55,140
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Accounts payable ......................................... $ 8,556 $ 9,831
Accrued liabilities ...................................... 4,571 5,266
Deferred revenue ......................................... 937 994
--------- ---------
Total current liabilities ............................. 14,064 16,091
Accrued rent ................................................ 204 213
Shareholders' Equity
Common stock (issued: 5,959,103 and 5,894,760) ........... 60 59
Additional paid-in capital ............................... 15,741 15,238
Retained earnings ........................................ 23,894 23,539
--------- ---------
Total shareholders' equity ............................ 39,695 38,836
--------- ---------
Total liabilities and shareholders' equity .................. $ 53,963 $ 55,140
========= =========
</TABLE>
Note: The balance sheet at March 28, 1999 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
SEE ACCOMPANYING NOTES.
4 of 13
<PAGE>
FUNCO, INC.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
July 4, June 28,
1999 1998
--------- ---------
<S> <C> <C>
Operating Activities
Net income ...................................................... $ 355 $ 500
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization ................................ 1,106 839
Net loss on disposal of property and equipment ............... 68 6
Changes in operating assets and liabilities:
Accounts receivable ....................................... (553) 1,083
Inventories ............................................... (2,177) (5,802)
Prepaid expenses .......................................... 348 (1,184)
Accounts payable .......................................... (1,275) 3,751
Accrued liabilities ....................................... (704) (2,387)
Deferred revenue .......................................... (57) (196)
--------- ---------
Net cash used in operating activities .................. (2,889) (3,390)
Investing Activities
Additions of property and equipment ............................. (1,878) (380)
Increase in other assets ........................................ (5) --
Purchase of short-term investments .............................. -- (2,329)
--------- ---------
Net cash used in investing activities ..................... (1,883) (2,709)
Financing Activities
Net proceeds from issuance of common stock ...................... 504 74
--------- ---------
Net cash provided by financing activities ................. 504 74
Decrease in cash and cash equivalents .............................. (4,268) (6,025)
Cash and cash equivalents at beginning of period ................... 8,550 9,295
--------- ---------
Cash and cash equivalents at end of period ......................... $ 4,282 $ 3,270
========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
5 of 13
<PAGE>
FUNCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company
Funco, Inc. (the Company) was incorporated in March 1988 and is a leading
national specialty retailer of interactive home entertainment, primarily through
the purchase and resale of new and previously played video games along with
related hardware and accessory items through its FUNCOLAND(R) stores. The store
strategy is complemented by the Company's mail order operation, the FUNCOLAND
SUPERSTORE Web site and publication of GAME INFORMER(R), a video game magazine.
The Company operated 315 retail locations at July 4, 1999, compared to 252
retail locations at June 28, 1998.
Note 2. Fiscal Year
The Company's fiscal year ends on a Sunday on or near March 31st which completes
a 52 or 53-week reporting period. Fiscal 2000 is a 53-week reporting period with
the first quarter consisting of 14 weeks and all other quarters consisting of 13
weeks. Fiscal 1999 was a 52-week reporting period with each quarter consisting
of 13 weeks.
Ending Date
------------------------------------------
2000 1999
----------------- --------------------
First July 4, 1999 June 28, 1998
Second October 3, 1999 September 27, 1998
Third January 2, 2000 December 27, 1998
Fourth April 2, 2000 March 28, 1999
Note 3. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
solely of normal recurring accruals) considered necessary for a fair
presentation have been included.
Due to the seasonal nature of the Company's business, the operating results for
the quarter ended July 4, 1999 are not necessarily indicative of the results
that may be expected for the fiscal year ending April 2, 2000.
For further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended March
28, 1999.
6 of 13
<PAGE>
Note 5. Net Income per Share
The following table sets forth the computation of basic and diluted net income
per share:
<TABLE>
<CAPTION>
Quarter Ended
--------------------------
July 4, June 28,
1999 1998
----------- -----------
<S> <C> <C>
Numerator:
Net income ...................................... $ 355,000 $ 500,000
=========== ===========
Denominator:
Denominator for basic net income
per share - weighted average shares ........... 5,929,029 6,195,452
Dilutive securities:
Employee and nonemployee director stock
options ....................................... 411,710 353,444
----------- -----------
Denominator for diluted earnings per share -
adjusted weighted average shares .............. 6,340,739 6,548,896
=========== ===========
Basic earnings per share ........................... $ 0.06 $ 0.08
=========== ===========
Diluted earnings per share ......................... $ 0.06 $ 0.08
=========== ===========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth certain items in the statements of income
expressed as (i) percentage of net sales for the quarter indicated and (ii)
percentage changes from the comparable period prior year.
<TABLE>
<CAPTION>
Percent
Quarter Ended Inc (Dec)
---------------------- ---------
July 4, June 28, 2000 over
1999 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Net sales ................................ 100.0% 100.0% 29.2%
Cost of sales ............................ 66.2 64.6 32.3
--------- ---------
Gross profit ............................. 33.8 35.4 23.6
Operating expenses ....................... 25.4 25.5 28.6
General and admin. expenses .............. 7.1 7.6 20.7
--------- ---------
Operating income ......................... 1.3 2.2 (25.5)
Interest income .......................... 0.1 0.4 (56.7)
--------- ---------
Net income before taxes .................. 1.4 2.5 (30.0)
Income tax provision ..................... 0.5 1.0 (31.4)
--------- ---------
Net income ............................... 0.8% 1.5% (29.0)%
========= =========
</TABLE>
7 of 13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comparison of First Quarter Fiscal 2000 to First Quarter Fiscal 1999
Net sales for the quarter increased from $32,894,000 in 1999 to $42,505,000 in
2000, an increase of 29.2%. The Company opened four new stores and closed one
store during the quarter and operated a total of 315 locations at the end of the
quarter this year compared to 252 locations at the end of the same period prior
year. Comparable store sales for the quarter increased a modest 0.3%. The strong
overall sales increase is primarily due to operating a greater number of stores
compared to prior year.
Cost of sales for the quarter increased from $21,264,000 in 1999 to $28,133,000
in 2000, an increase of 32.3%. The dollar increase in cost of sales is primarily
due to the strong growth in sales. Cost of sales as a percentage of net sales
for the quarter increased from 64.6% in 1999 to 66.2% in 2000. This increase is
primarily due to a shift in sales mix from previously played product to lower
margin new product which accounted for 58% of sales for the first quarter,
compared to 54% for the same period last year.
Operating expenses for the quarter increased from $8,402,000 in 1999 to
$10,805,000 in 2000, an increase of 28.6%. This increase is primarily due to
higher store payroll and occupancy expense which occurred as the Company
operated a greater number of stores than in the same period prior year.
Operating expenses as a percentage of net sales decreased from 25.5% in 1999 to
25.4% in 2000.
General and administrative expenses for the quarter increased from $2,514,000 in
1999 to $3,035,000 in 2000, an increase of 20.7%. This increase occurred to
support the store base which grew to 315 locations from 252 locations at the end
of the same period in the prior year. General and administrative expenses
decreased favorably as a percentage of net sales from 7.6% in 1999 to 7.1% in
2000, due to leveraging as net sales increased by 29.2%.
The Company generated operating income for the quarter of $532,000 compared to
operating income of $714,000 for the same period prior year, a decrease of
25.5%.
Interest income for the quarter decreased from $120,000 in 1999 to $52,000 in
2000, a decrease 43.3% as the Company maintained lower levels of short-term
investments than prior year.
The Company generated net income before income taxes for the quarter of $584,000
compared to net income before income taxes of $834,000 in the same period prior
year, a decrease of 30.0%. As a result the Company recorded income tax expense
for the quarter of $229,000 compared to income tax expense of $334,000 for the
same period prior year.
Due to the above factors, the Company generated net income for the quarter of
$355,000, or $0.06 per share, compared to net income of $500,000, or $0.08 per
share, for the same period prior year.
8 of 13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Seasonality and Quarterly Fluctuations
The Company's business is seasonal with a majority of net sales generated in the
third and fourth fiscal quarters, which include the holiday selling season. In
addition to sales seasonality, the Company's quarterly results are also impacted
by factors including new product introductions and the number and timing of new
store openings. Growth of the store base may obscure the impact of seasonal
influences. Because of the seasonality of the Company's business and the factors
mentioned above, results for any quarter are not necessarily indicative of the
results that may be achieved for a full fiscal year. The following table sets
forth net sales by quarter and the number of stores operating at each quarter
end for the past nine quarters:
<TABLE>
<CAPTION>
Net Sales (in thousands) Number of Stores Open at Quarter End
- -------------------------------------------- --------------------------------------------
Fiscal Fiscal
Quarter 2000 1999 1998 Quarter 2000 1999 1998
- -------- --------- --------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
First $42,505 $32,894 $24,001 First 315 252 193
Second 35,299 26,760 Second 270 215
Third 82,889 67,036 Third 310 249
Fourth 55,591 45,519 Fourth 312 250
</TABLE>
Liquidity and Capital Resources
The Company's primary ongoing financing requirements are for new store capital
expenditures and inventory. On an interim basis, the Company's financing
requirements are also impacted by quarterly operating results and seasonal
fluctuations in inventory levels.
During the three months ended July 4, 1999, the Company used $2,889,000 of cash
for operating activities primarily for the purchase of inventory, and used
$1,883,000 of cash for investing activities, primarily for capital expenditures
relating to both new stores opened during the quarter and future store openings.
For the three months ended June 28, 1998, the Company used $3,390,000 of cash
for operating activities and used $2,709,000 of cash for investing activities.
The Company has a $5,000,000 unsecured revolving credit facility with a
commercial bank, seasonally increasing to $10,000,000. The interest rate on
outstanding borrowings under the facility (7.02% for the month ended July 4,
1999) is based upon LIBOR plus 200 basis points. The facility requires the
Company to maintain certain financial ratios and achieve certain operating
results. The Company had no borrowings under this facility at July 4, 1999 and
currently has no borrowings.
During fiscal 2000, the Company plans to incur capital expenditures of
approximately $7,650,000, of which $1,878,000 has been incurred to date, for new
store openings, store remodels and renovations, enhancements to store and
corporate information systems and general corporate purposes. The Company
incurred capital expenditures of $6,838,000 in fiscal 1999.
The Company believes that cash from operations and funds available under its
revolving credit facility will provide sufficient funds for financing planned
store openings, working capital needs and other capital expenditures for at
least 12 months.
9 of 13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000
Readiness Plan
The Company's year 2000 Readiness plan is primarily directed towards ensuring
that the Company will be able to perform its critical functions: (1) accurately
process sale and purchase transactions through its retail, mail order and web
site operations, (2) order and receive merchandise from vendors, (3) make
appropriate decisions as to inventory pricing and distribution and (4) assure
integrity of business operations, controls and financial reporting.
The Company is involved in an ongoing assessment of year 2000 readiness and is
undergoing a company-wide program of adapting its computer systems and
applications for the year 2000. Substantially all in-house developed software
has been written to be year 2000 compliant. Recently completed upgrades of
important applications, including inventory management, transfer management,
merchandise information and financial systems, were designed to be year 2000
compliant. Several less critical in-house applications and third party packages
require year 2000 modification. All of the Company's systems and applications
are included in the Company's ongoing year 2000 readiness efforts.
The Company is also in the process of assessing year 2000 issues associated with
its various business partners, including vendors and service providers, and is
actively working with these third parties to identify and mitigate common risks.
The Company is also engaged in the assessment of year 2000 issues affecting its
telephone and communication systems, distribution processes, utilities, alarm
systems and transportation services.
Risks
The variety, nature and complexity of year 2000 issues, the dependence on
technical skills and expertise of Company employees and independent contractors
and issues associated with the readiness of third parties are factors which
could result in the Company's efforts toward year 2000 compliance being less
than fully effective.
Failure to properly assess and correct year 2000 issues could result in
materially adverse financial consequences through an inability to adequately
process retail, mail order or web site transactions or, due to the failure of
the Company's systems, to provide accurate information for ordering, pricing or
distributing merchandise. Accurate financial reporting is dependent upon year
2000 compliance. Failures caused by vendors not being year 2000 compliant could
lead to delays in receiving product shipments and to a resulting loss of sales.
Year 2000 compliance difficulties on the part of financial institutions could
interfere with cash collections, payments and funding for the Company. In
addition to the above, the Company believes that other unidentified risks could
be associated with failure of year 2000 compliance by the Company or third
parties.
Readiness Progress
A summary of the Company's critical systems and progress toward year 2000
readiness is as follows:
Store systems include software applications and hardware that process
transactions in the retail stores and enable communication of information
between stores and the Company's corporate office. These systems include a new
third party software package which was installed in FUNCOLAND store locations
between August 1998 and April 1999. Each store's hardware configuration includes
a new server installed at the same time as the new software and generally
includes earlier installed hardware components. Although the
10 of 13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
new software and new hardware are believed to be year 2000 compliant, full
testing is currently in process. Year 2000 readiness of the Company's store
systems is approximately 70% complete.
Financial systems primarily consist of a series of third party software modules
installed between March 1998 and August 1998. These systems are used for
accounting, control and financial reporting. These systems are currently being
tested to recognize transactions over a wide range of critical dates. Year 2000
readiness of the Company's financial systems is approximately 90% complete.
Corporate systems encompass in-house developed software applications and
recently upgraded systems performing functions including inventory management,
transfer management and merchandise information. These in-house developed
software applications were designed for year 2000 readiness, but are undergoing
comprehensive evaluation and testing. Year 2000 readiness of the Company's
corporate systems is approximately 40% complete.
Contingency Plan
Based on progress and efforts to date, the Company believes that its program of
assessment, testing and correcting, along with selected system upgrades, will
enable it to successfully meet the year 2000 challenge. The Company is in the
process of completing a formal contingency plan and in the event of failures
associated with year 2000 readiness, believes that adequate resources could
rapidly be directed toward correcting isolated internal failures. The plan
includes supplementing those systems and processes which are year 2000 ready
with alternate means of data collection, storage and retrieval. It also includes
alternative means of communication between the Company's corporate office,
distribution center, store locations, vendors and customers. The plan's
objective is to assure continuity in performing critical functions, but includes
risks associated with third party service providers.
Costs
As of July 4, 1999, the Company had incurred costs of less than $100,000 related
to year 2000 readiness, including testing, analysis and purchase of software
upgrades. Total costs associated with year 2000 readiness are expected to be
less than $500,000. However, there can be no assurance that costs will not
exceed this level. The Company does not expect to incur material costs
associated with the use of external resources.
Forward Looking Statements
Forward looking statements contained in this document which directly or
indirectly relate to future sales prospects and expansion plans are subject to
uncertainties from factors including growth of the industry, competitive
environment, general economic conditions, product availability, success of the
Company's existing operations, availability of new store sites and the Company's
ability to finance new store expansion. In addition, forward looking statements
contained in this document relating to Year 2000 readiness are subject to
uncertainties such as third party readiness and the Company's successful
completion of assessment and remediation efforts. For further discussion of
forward looking statements and factors which can impact the Company's operating
results, please refer to the Company's report on Form 10-K for the year ended
March 28, 1999, and other Company filings with the Securities and Exchange
Commission.
11 of 13
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's operations are not currently subject to market risks relating to
interest rates, foreign currency exchange rates, commodity prices or other
market price risks of a material nature.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its Chief Executive Officer were named as defendants in a civil
lawsuit filed on August 17, 1995 in the United States District Court, District
of Minnesota, entitled Christopher Cannon v. Funco, Inc. and David R. Pomije.
The plaintiff purported to represent a class of all purchasers of the Company's
common stock during the putative class period May 18, 1994 through December 15,
1994. On October 18, 1996 the court dismissed the state common law claims with
prejudice and dismissed the federal securities claims without prejudice, giving
the plaintiff leave to file an Amended Complaint.
The plaintiff filed an Amended Complaint on January 6, 1997, a similarly styled
class action lawsuit, alleging the Company's share price was artificially
inflated, asserting various claims under the Securities Exchange Act of 1934, as
amended, and seeking damages in an unspecified amount plus costs and attorney's
fees.
A settlement agreement was negotiated between the parties and was approved by
the court on April 30, 1999. The settlement had no material impact on the
Company's results of operations, financial condition or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed with this Form 10-Q
10.1 Amendment to Credit Agreement effective June 30, 1999,
by and between the Registrant and Marquette Capital
Bank, N.A., and the Amended and Restated Promissory Note
10.2 Amendment to lease for corporate headquarters in Eden
Prairie, Minnesota effective June 1, 1999 and filed as
an exhibit to Form 10-K for fiscal year 1999, filed on
June 28, 1999, and incorporated herein by reference
10.3 Executive Employment Agreement with David R. Pomije
10.4 Executive Employment Agreement with Stanley A. Bodine
10.5 Executive Employment Agreement with Robert M. Hiben
10.6 Executive Employment Agreement with Jeffery R. Gatesmith
27 Financial Data Schedule
(b) No report on Form 8-K was filed by the registrant during the
quarter ended July 4, 1999.
12 of 13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Funco, Inc.
(Registrant)
Date: July 28, 1999 By: /s/ David R. Pomije
-------------------------------------
David R. Pomije
Chief Executive Officer
By: /s/ Robert M. Hiben
-------------------------------------
Robert M. Hiben
Chief Financial Officer
13 of 13
Exhibit 10.1 Amendment to Credit Agreement
AMENDMENT TO CREDIT AGREEMENT
THIS AMENDMENT is entered into as of June 30, 1999 by and between
FUNCO, INC., a Minnesota corporation (the "Borrower"), and MARQUETTE CAPITAL
BANK, N.A. (the "Bank"). In consideration of the mutual agreements set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties, the Borrower and the
Bank agree as follows:
1. The Credit Agreement dated June 20, 1995, by and between the
Borrower and the Bank, as amended by an Amendment to Credit Agreement dated
February 5, 1996 and by an Amendment to Credit Agreement and Security Agreement
dated June 30, 1996 and by an Amendment to Credit Agreement dated June 30, 1997
and by an Amendment to Credit Agreement dated June 30, 1998 (the "Credit
Agreement"), is amended as follows:
a. Section 2.01 of the Credit Agreement is amended to read as follows:
Section 2.01 Advances. Subject to the provisions of this
Agreement, the Bank shall make Advances to the Borrower from time to
time during the period from the date hereof to June 30, 2000, or the
earlier date of termination of the Line of Credit pursuant to Section
6.02, in an aggregate amount not exceeding at any time outstanding
$10,000,000.00 during the period from September 15, 1999 through
December 15, 1999, and in an aggregate amount not exceeding at any time
outstanding $5,000,000.00 at all other times (the "Line of Credit").
Each Advance shall be in the amount of $10,000.00 or an integral
multiple thereof. Within the limits of the Line of Credit, the Borrower
may borrow, prepay, and reborrow under this Section 2.01. During the
period from January 3, 2000 through April 2, 2000 the Borrower shall
cause the aggregate outstanding amount of Advances to be zero for 45
consecutive days.
b. Section 2.03 of the Credit Agreement is amended to read as follows:
Section 2.03 Revolving Note. The obligation to repay the
Advances and to pay interest and other charges, fees and expenses
thereon is evidenced by the Borrower's $10,000,000.00 Amended and
Restated Promissory Note dated June 30, 1999 in favor of the Bank
(together with any amendments, extensions, renewals and replacements
thereof, called the "Revolving Note").
c. All references to June 30, 1999 are changed to June 30, 2000 in
Section 2.08 of the Credit Agreement.
1
<PAGE>
d. The reference to $4,000,000.00 is changed to $7,000,000.00 in
Section 5.10 of the Credit Agreement.
e. Section 5.15 of the Credit Agreement is amended to read as follows:
Section 5.15 Capital Expenditures. The Borrower shall not
permit the aggregate amount of Capital Expenditures of the Borrower and
the Subsidiaries in the Borrower's fiscal year ending April 2, 2000 to
exceed $10,000,000.00.
f. Section 5.16 of the Credit Agreement is amended to read as follows:
Section 5.16 Consolidated Tangible Net Worth. The Borrower
shall not permit the Consolidated Tangible Net Worth of the Borrower
and the Subsidiaries to be less than (a) $32,000,000.00 at any time
during the period from March 28, 1999 through April 1, 2000; or (b)
$38,000,000.00 at any time during the period after April 1, 2000.
g. Section 5.17 of the Credit Agreement is amended to read as follows:
Section 5.17 Consolidated Current Ratio. The Borrower shall
not permit the ratio of Consolidated Current Assets to Consolidated
Current Liabilities of the Borrower and the Subsidiaries to be less
than: (a) 2.00 to 1 at any time during the period from March 29, 1999
through August 29, 1999; or (b) 1.50 to 1 at any time during the period
from August 30, 1999 through November 28, 1999; or (c) 1.60 to 1 at any
time during the period from November 29, 1999 through April 1, 2000; or
(d) 2.50 to 1 on April 2, 2000; or (e) 2.00 to 1 at any time after
April 2, 2000.
h. Section 5.18 of the Credit Agreement is amended to read as follows:
Section 5.18 Consolidated EBITDA. The Borrower shall not at
any time permit the consolidated earnings before interest, taxes,
depreciation and amortization expense of the Borrower and the
Subsidiaries in any period of 12 consecutive fiscal months of the
Borrower designated below to be less than the amount set forth below
for such period:
12-Fiscal Month Period Ending: Minimum Amount
------------------------------ --------------
From 3/28/99 through 4/1/00 $13,000,000.00
After 4/1/00 $15,000,000.00
i. Section 5.19 of the Credit Agreement is amended to read as follows:
2
<PAGE>
Section 5.19 New Stores. In the Borrower's fiscal year ending
April 2, 2000, the Borrower shall not permit the number of new stores
opened by the Borrower minus the number of stores closed by the
Borrower to exceed 93.
j. Exhibit D to the Credit Agreement is amended to read as stated in
Exhibit D attached hereto.
2. The Bank waives the Borrower's failure to comply with Section 5.15
of the Credit Agreement in the Borrower's fiscal year ending March 28, 1999.
Such waiver is limited to such fiscal year, and such Section 5.15, as amended
herein, remains in full force and effect.
3. Except as amended or terminated herein or herewith, all provisions
of the Credit Agreement and all other agreements of the parties remain in full
force and effect. No provision of this Amendment can be amended, modified,
waived or terminated, except by a writing executed by the Borrower and the Bank.
The Borrower shall pay to the Bank on demand all of the Bank's costs and
expenses, including but not limited to reasonable attorneys' fees and legal
expenses, in connection with this Amendment, the writings executed herewith, and
the transactions described herein and therein. This Amendment shall bind and
benefit the parties and their respective successors and assigns; provided, the
Borrower shall not assign any of its rights or obligations under this Amendment
without the prior written consent of the Bank, and any assignment in violation
of this sentence shall be null and void. This Amendment and the Credit Agreement
as amended herein shall be governed by and construed in accordance with the
internal laws of the State of Minnesota (excluding conflict of law rules).
Executed as of the date first above written.
FUNCO, INC.
By /s/ Robert M. Hiben
--------------------------------------
Title CFO
------------------------------------
MARQUETTE CAPITAL BANK, N.A.
By /s/ Margaret Mary Yanez
--------------------------------------
Title Vice President
------------------------------------
3
<PAGE>
EXHIBIT D
FUNCO, INC.
COVENANT COMPLIANCE CERTIFICATE
The undersigned chief financial officer of Funco, Inc., pursuant to the
Credit Agreement dated June 20, 1995, as amended (the "Agreement"), hereby
certifies to Marquette Capital Bank, N.A. as follows:
As of the close of business on _____________, _____, the following
amounts and ratios were true and correct:
1. Section 5.16 Consolidated Tangible Net Worth:
a. Actual Consolidated Tangible Net Worth $
----------------
b. Minimum Consolidated Tangible Net Worth $
----------------
2. Section 5.17 Consolidated Current Ratio:
a. Consolidated Current Assets $
----------------
b. Consolidated Current Liabilities $
----------------
c. Actual Ratio of Consolidated Current
Assets to Consolidated Current Liabilities to 1
---------
d. Minimum Ratio to 1
---------
3. Section 5.18 Consolidated EBITDA
for 12-Fiscal Month Period Ending _____________, ____:
a. Earnings: Net Income or (Loss) $
----------------
b. Interest Expense $
----------------
c. Taxes Expense $
----------------
d. Depreciation Expense $
----------------
e. Amortization Expense $
----------------
f. Actual EBITDA (a + b + c + d + e) $
----------------
g. Minimum EBITDA $
----------------
As of the date of this Certificate, no event has occurred which
constitutes an Event of Default under the Agreement or would constitute an Event
of Default under the Agreement with notice or the passage of time or both.
Date of Certificate: _________________, ___
-----------------------------------------
Signature
4
<PAGE>
AMENDED AND RESTATED PROMISSORY NOTE
Date: June 30, 1999
For valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by the parties, the $10,000,000.00 Amended and Restated
Promissory Note of Funco, Inc. dated June 30, 1998, payable to the order of
Marquette Capital Bank, now known as Marquette Capital Bank, N.A., is amended
and restated to read as follows:
$10,000,000.00 Minneapolis, Minnesota
FOR VALUE RECEIVED, on June 30, 2000, the undersigned, FUNCO, INC.,
promises to pay to the order of MARQUETTE CAPITAL BANK, N.A. (the "Bank"), at
its office in Minneapolis, Minnesota, or at such other place as any present or
future holder of this Note may designate from time to time, the principal sum of
(i) $10,000,000.00, or (ii) the aggregate unpaid principal amount of all
advances of credit made by the Bank to the undersigned pursuant to this Note as
shown in the records of any present or future holder of this Note, whichever is
less, plus interest thereon from the date of each advance in whole or in part
included in such amount until this Note is fully paid, computed on the basis of
the actual number of days elapsed and a 360-day year, at an annual rate that
shall always be 2.00% per annum in excess of the Index Rate and that shall
change when and as the Index Rate shall change. Interest is due and payable on
the last day of each month and at maturity. In each calendar month, "Index Rate"
means the average 1-month LIBOR Rate published in The Wall Street Journal in the
previous calendar month. If the Index Rate is no longer available, the Bank may
select a comparable rate to be used as the Index Rate under this Note. The Bank
may lend to its customers at rates that are equal to, greater than, or less than
the Index Rate. Notwithstanding the foregoing, after an Event of Default this
Note shall bear interest until paid at 2% per annum in excess of the rate
otherwise then in effect, which rate shall continue to vary based on further
changes in the Index Rate. The undersigned shall not permit the unpaid principal
balance of this Note to exceed $5,000,000.00, except during the period from
September 15, 1999 through December 15, 1999.
All or any part of the unpaid balance of this Note may be prepaid at
any time without penalty. At the option of the then holder of this Note, any
payment under this Note may be applied first to the payment of other charges,
fees and expenses under this Note and any other agreement or writing in
connection with this Note, second to the payment of interest accrued through the
date of payment, and third to the payment of principal. Also, at the option of
the holder of this Note, if there is any overpayment of interest under this
Note, the holder may hold the excess and apply it to future interest accruing
under this Note. Amounts may be advanced and readvanced under this Note,
provided the principal balance outstanding shall not exceed $10,000,000.00
during the period from September 15, 1999 through December 15, 1999, and shall
not exceed $5,000,000.00 at any other time.
The occurrence of an Event of Default under the Credit Agreement dated
June 20, 1995 by and between the undersigned and the Bank, as it may be amended
from time to time, shall constitute an Event of Default under this Note.
5
<PAGE>
Upon the commencement of any proceeding under any bankruptcy law by or
against any maker of this Note, this Note automatically shall become immediately
due and payable for the entire unpaid principal balance of this Note plus
accrued interest and other charges, fees and expenses under this Note without
any declaration, presentment, demand, protest, or other notice of any kind. Upon
the occurrence of any other Event of Default and at any time thereafter, the
then holder of this Note may, at its option, declare this Note to be immediately
due and payable and thereupon this Note shall become immediately due and payable
for the entire unpaid principal balance of this Note plus accrued interest and
other charges on this Note without any presentment, demand, protest or other
notice of any kind.
The undersigned (i) waives demand, presentment, protest, notice of
protest, notice of dishonor and notice of nonpayment of this Note; and (ii)
agrees that when or at any time after this Note becomes due the then holder of
this Note may offset or charge the full amount owing on this Note against any
account then maintained by the undersigned with such holder of this Note without
notice. Interest on any amount under this Note shall continue to accrue, at the
option of any present or future holder of this Note, until such holder receives
final payment of such amount in collected funds in form and substance acceptable
to such holder.
The extensions of credit under this Note are made under Section 47.59
of the Minnesota Statutes. No waiver of any right or remedy under this Note
shall be valid unless in writing executed by the holder of this Note, and any
such waiver shall be effective only in the specific instance and for the
specific purpose given. All rights and remedies of all present and future
holders of this Note shall be cumulative and may be exercised singly,
concurrently or successively. This Note shall bind the undersigned and the
successors and assigns of the undersigned. This Note shall be governed by and
construed in accordance with the internal laws of the State of Minnesota
(excluding conflict of law rules).
THE UNDERSIGNED REPRESENTS, CERTIFIES, WARRANTS AND AGREES THAT THE
UNDERSIGNED HAS READ ALL OF THIS NOTE AND UNDERSTANDS ALL OF THE PROVISIONS OF
THIS NOTE.
Executed as of June 30, 1999.
FUNCO, INC.
By /s/ Robert M. Hiben
--------------------------------------
Title CFO
-----------------------------------
6
<PAGE>
Marquette Capital Bank, N.A. agrees to this Amended and Restated Promissory
Note.
Executed as of June 30, 1999.
MARQUETTE CAPITAL BANK, N.A.
By /s/ Margaret Mary Yanez
--------------------------------------
Title Vice President
-----------------------------------
7
EXHIBIT 10.3 EXECUTIVE EMPLOYMENT AGREEMENT WITH DAVID R. POMIJE
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("AGREEMENT"), effective the 19th
day of May, 1999, is by and between Funco, Inc., a Minnesota corporation
("COMPANY"), and David R. Pomije ("EXECUTIVE"), a Minnesota resident.
RECITALS:
A. Executive is currently employed by the Company in the capacity
of Chairman of the Board and Chief Executive Officer.
B. The Company is currently engaged in the sale of new and
previously played video games and video game equipment (the
"PRODUCTS") in its retail Funcoland stores, on its website, by
mail order, and to wholesale distributors, and the publication
of a magazine styled the "THE GAME INFORMER"(hereafter the
"COMPANY'S BUSINESS").
C. Executive has learned certain unique skills, talents,
contacts, judgment and knowledge, all to the benefit of the
Company, and has knowledge of the Company's Business,
strategies, and objectives.
D. The Board of Directors of the Company (the "BOARD") recognizes
that the possibility of a Change in Control (as hereinafter
defined) exists and that the threat or occurrence of a Change
in Control can result in significant distractions of the
Company's key management personnel because of the
uncertainties inherent in such a situation.
E. The Board has determined that it is essential and in the best
interest of the Company and its shareholders to retain the
services of the Executive in the event of the threat or
occurrence of a Change in Control and to ensure his continued
dedication and efforts in such event without undue concern for
his personal financial and employment security.
F. In order to induce the Executive to remain in the employ of
the Company, particularly in the event of a threat or
occurrence of a Change in Control, the Company desires to
enter into this Agreement with the Executive to provide the
Executive with certain payments and benefits during his
employment and following a Change in Control in the event his
employment is terminated as a result of, or in connection
with, a Change in Control.
In consideration of the foregoing Recitals, and the parties' mutual
covenants and undertakings contained in this Agreement, the Company and the
Executive agree as follows:
1. DEFINITIONS. Capitalized terms used in this Agreement shall have their
defined meaning throughout the Agreement. The following terms shall
have the meanings set forth below, unless the context clearly requires
otherwise.
1.1 "AGREEMENT" means this Executive Employment Agreement, as from
time to time amended.
1.2 "ANTICIPATORY EVENT" means the termination of Executive's
employment during the term of this Agreement or any renewal
thereof and prior to a Change in Control if it is reasonably
demonstrated by Executive that such termination (i) was at the
request of a third party who has taken steps reasonably
calculated to effect the Change in Control or (ii) otherwise
arose in connection with or anticipation of a Change in
Control.
<PAGE>
1.3 "BASE SALARY" means the total annual cash compensation payable
on a regular periodic basis, without regard to voluntary or
mandatory deferrals, as set forth at Section 3.1 of this
Agreement.
1.4 "BENEFICIARY" means the person or persons designated in
writing to the Company by Executive to receive any benefits
payable after Executive's death pursuant to this Agreement. In
the absence of such designation or in the event that all of
the persons so designated predecease Executive, Beneficiary
means the executor, administrator or personal representative
of Executive's estate.
1.5 "BOARD" means the Board of Directors of the Company.
1.6 "CAUSE" has the meaning set forth at Section 4.2 of this
Agreement.
1.7 "CHANGE IN CONTROL" has the meaning set forth at Section 7.1.1
of this Agreement.
1.8 "COMPANY" means all of the following, jointly and severally:
(a) Funco, Inc. and (b) any Successor.
1.9 "CONFIDENTIAL INFORMATION" means information that is
proprietary to the Company or proprietary to others and
entrusted to the Company, whether or not trade secrets, and
including, but not limited to, the Company's business plans,
advertising and/or marketing plans, financial performance,
financial projections, subscriber list, any other customer
lists, pricing information (prior to publication), personnel
matters, or any other matter considered or reasonably expected
to be considered confidential by the Company regarding the
Company's business and its employees.
1.10 "DATE OF TERMINATION" has the meaning set forth at Section
4.7.2 of this Agreement.
1.11 "DISABILITY" shall mean a physical or mental infirmity which
impairs the Executive's ability to substantially perform his
duties if it continues for a period of at least 180
consecutive days. Notwithstanding anything contained in this
Agreement to the contrary, until the Date of Termination
specified in a Notice of Termination relating to the
Executive's Disability, the Executive shall be entitled to
return to his position with the Company, in which event no
Disability of the Executive will be deemed to have occurred.
1.12 "EXECUTIVE" means David R. Pomije, and "Executive Officers"
means the Executive and Stanley A. Bodine, Jeffrey R.
Gatesmith and Robert M. Hiben (as long as they continue to be
officers of the Company), and any individuals who may
subsequently serve in the same, or substantially the same,
positions, whether or not holding the same title.
1.13 "GOOD REASON" has the meaning set forth at Section 4.4 of this
Agreement.
1.14 "INCENTIVE BONUS" means the annual cash bonus payable to the
Executive as set forth in Section 3.1 of this Agreement.
1.15 "NOTICE OF TERMINATION" has the meaning set forth at Section
4.7.1 of this Agreement.
1.16 "PARENT CORPORATION" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the
Company if at the time the corporation other than the Company
owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations
in the chain.
2
<PAGE>
1.17 "PLAN" means any bonus or incentive compensation agreement,
plan, program, policy or arrangement sponsored, maintained or
contributed to by the Company, to which the Company is a party
or under which employees of the Company are covered,
including, without limitation, any stock option, restricted
stock or any other equity-based compensation plan, annual or
long-term incentive (bonus) plan, and any employee benefit
plan, such as a thrift, pension, profit sharing, deferred
compensation, medical, dental, disability, accident, life
insurance, automobile allowance, perquisite, fringe benefit,
vacation, sick or parental leave, severance or relocation plan
or policy or any other agreement, plan, program, policy or
arrangement intended to benefit employees or executive
officers of the Company.
1.18 "SUBSIDIARY" means any corporation at least a majority of
whose securities having ordinary voting power for the election
of directors (other than securities having such power only by
reason of the occurrence of a contingency) is at the time
owned by the Parent Corporation, the Company and/or one or
more Subsidiaries.
1.19 "SUCCESSOR" has the meaning set forth at Section 9.1.1 of this
Agreement.
1.20 "INVENTIONS" means ideas, improvements and discoveries,
whether or not such are patentable or copyrightable, and
whether or not in writing or reduced to practice.
1.21 "WORKS OF AUTHORSHIP" means writings, drawings, software, and
any other works of authorship, whether or not such are
copyrightable.
2. EMPLOYMENT, DUTIES AND TERM.
2.1 EMPLOYMENT. Upon the terms and conditions set forth in this
Agreement, the Company hereby employs Executive, and Executive
accepts such employment, as Chairman of the Board and Chief
Executive Officer of the Company. Except as expressly provided
herein, termination of this Agreement by either party or by
mutual agreement of the parties shall also terminate
Executive's employment by the Company.
2.2 DUTIES. During the term of this Agreement, and excluding any
periods of vacation, sick, disability or other leave to which
Executive is entitled, Executive agrees to devote reasonable
attention and time during normal business hours to the
business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to
Executive hereunder and under the Company's bylaws, as amended
from time to time, to use Executive's reasonable best efforts
to perform faithfully and efficiently such responsibilities.
During the term of this Agreement, it shall not be a violation
of this Agreement for Executive to serve on corporate, civic
or charitable boards or committees, deliver lectures, fulfill
speaking engagements or teach at educational institutions and
manage personal investments, so long as such activities do not
significantly interfere with the performance of Executive's
responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been
conducted by Executive prior to the date of this Agreement,
the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to
the date of this Agreement shall not thereafter be deemed to
interfere with the performance of Executive's responsibilities
to the Company. Executive shall reasonably comply with the
Company policies and procedures; PROVIDED, that to the extent
such policies and procedures are inconsistent with this
Agreement, the provisions of this Agreement shall control.
2.3 CERTAIN PROPRIETARY INFORMATION. If Executive possesses any
proprietary information of another person or entity as a
result of prior employment or relationship, Executive
3
<PAGE>
shall honor any legal obligation that Executive has with that
person or entity with respect to such proprietary information.
2.4 TERM. This Agreement shall be effective as of the date set
forth above, and shall be in effect until March 31, 2001,
provided that, commencing on March 31, 2001, and on each March
31 thereafter, the term of this Agreement shall be renewed
automatically for the subsequent one-year period unless either
the Executive or the Company gives written notice to the other
party of its intent not to so extend this Agreement at least
60 days prior to the end of the term of this Agreement or the
applicable renewal period, as the case may be, or, if a Change
in Control has occurred during the term of this Agreement or
any renewal thereof, this Agreement shall be in effect for a
period of two (2) years following the date of the Change in
Control; PROVIDED, HOWEVER, that notwithstanding any such
notice by the Company not to extend, this Agreement and the
benefits provided hereunder shall not be terminated if prior
to the expiration of this Agreement an Anticipatory Event
shall have occurred, in which event, this Agreement shall
terminate only after such Person publicly announces that it
has abandoned all efforts to effect a Change in Control or, if
a Change in Control shall occur, two years following the
Change in Control.
2.5 RETURN OF PROPRIETARY PROPERTY. Executive agrees that all
property in Executive's possession belonging to the Company,
including without limitation, all documents, reports, manuals,
memoranda, computer print-outs, customer lists, credit cards,
keys, identification, products, access cards, automobiles and
all other property relating in any way to the business of the
Company are the exclusive property of the Company, even if
Executive authored, created or assisted in authoring or
creating such property. Executive shall return to the Company
all such documents and property immediately upon termination
of employment or at such earlier time as the Company may
reasonably request.
3. COMPENSATION, BENEFITS AND EXPENSES.
3.1 BASE SALARY/INCENTIVE BONUS. Subject to Section 4.8, during
the term of Executive's employment under this Agreement and
for as long thereafter as required pursuant to Section 4, the
Company shall pay Executive a Base Salary at an annual rate
that is not less than Three Hundred Thousand Dollars
($300,000.00) or such higher annual rate as may from time to
time be approved by the Board, such Base Salary to be paid in
substantially equal regular periodic payments in accordance
with the Company's regular payroll practices. If Executive's
Base Salary is increased from time to time during the term of
Executive's employment under this Agreement, the increased
amount shall become the Base Salary for the remainder of the
term and any extensions of Executive's term of employment
under this Agreement and for as long thereafter as required
pursuant to Section 4, subject to any subsequent increases. In
addition, the Executive shall be entitled to an annual
Incentive Bonus of 30% of Base Salary ("Target Incentive
Bonus"), contingent upon and adjusted by the Company's
achievement of goals defined by the Compensation Committee of
the Board.
3.2 OTHER COMPENSATION AND BENEFITS. During the term of
Executive's employment under this Agreement and for as long
thereafter as required pursuant to Section 4, the Company
shall continue in full force and effect all Plans in which
Executive is participating as of the date of this Agreement or
in which Executive becomes entitled to participate after the
date of this Agreement (or Plans providing Executive with at
least substantially similar benefits) other than as a result
of the normal expiration of any such Plan in accordance with
its terms as in effect as of the date of this Agreement or the
date as of which Executive first becomes entitled to
participate in such Plan, as the case may be, and shall not
take or omit to take any action that would adversely affect
Executive's continued participation in any such Plans on at
least as favorable a basis
4
<PAGE>
to Executive as is the case on the date of this Agreement or
the date as of which Executive first becomes entitled to
participate in such Plan, as the case may be, or which would
materially reduce Executive's benefits in the future under any
such Plans or deprive Executive of any material benefit
enjoyed by Executive as of the date of this Agreement or the
date as of which Executive first becomes entitled to
participate in such Plan, as the case may be. Executive shall
be entitled to participate in or receive benefits under any
Plan made available by the Company in the future to its
executives and key management employees, subject to and on a
basis consistent with the terms, conditions and overall
administration of such Plans. Nothing paid to Executive under
any Plan presently in effect or made available in the future
shall be deemed to be in lieu of the Base Salary, bonuses,
incentives or compensation of any other nature otherwise
payable to Executive.
3.3 VACATION. For the 2000 fiscal year and each subsequent fiscal
year that begins during the term of Executive's employment
under this Agreement and for each fiscal year thereafter as
required pursuant to Section 4 of this Agreement, Executive
shall be entitled to four weeks paid vacation. The time or
times at which such paid vacation is to be taken shall be
reasonably determined by Executive consistent with Executive's
duties and obligations under this Agreement. Any such vacation
with respect to a fiscal year that is unused as of the last
day of such fiscal year shall be carried forward to the next
fiscal year, but any unused vacation over ten (10) days shall
be forfeited.
3.4 BUSINESS EXPENSES. During the term of Executive's employment
under this Agreement and as for as long thereafter as required
pursuant to Section 4, the Company shall, in accordance with,
and to the extent of, its uniform policies in effect from time
to time, bear all ordinary and necessary business expenses
incurred by Executive in performing Executive's duties as an
executive officer of the Company, including, without
limitation, all travel and living expenses while away from
home on business in the service of the Company, home telephone
expenses incurred in service of the Company, social and civic
club membership and participation expenses and entertainment
expenses, provided that Executive accounts promptly for such
expenses to the Company in the manner reasonably prescribed
from time to time by the Company.
3.5 AUTOMOBILE. During the term of Executive's employment under
this Agreement, the Executive shall be required to have and
maintain a personal automobile for use in the performance of
his duties under this Agreement and a valid drivers license to
operate Company vehicles. During the term of Executive's
employment under this Agreement, the Company shall pay the
Executive an allowance at an initial rate of $750.00 per month
to compensate him for all expenses incurred by him in
complying with these requirements.
3.6 OFFICE AND FACILITIES. During the term of Executive's
employment under this Agreement, the Company shall furnish
Executive with office space, at least equivalent in size,
quality, furnishings and in other respects to the office space
provided as of the date of this Agreement, and part-time
secretarial service, together with such other reasonable
facilities and services as are suitable, necessary and
appropriate.
3.7 FUTURE GRANT OF OPTIONS. Conditioned on Executive's remaining
employed by the Company, the Company may grant to Executive
options to acquire shares of the Company's common stock.
3.8 DISCRETIONARY BONUSES. Executive shall be eligible to receive
bonuses from time to time as may be awarded to Executive by
the Board or a compensation committee appointed by the Board
in the Board or the Committee's sole discretion.
5
<PAGE>
3.9 TERM LIFE INSURANCE. During the term of this Agreement, the
Company shall pay the premiums to purchase and maintain term
life insurance on the life of the Executive in an amount equal
to four times the Executive's Base Salary as in effect from
time to time, the benefit to be payable to such Beneficiary as
Executive shall advise the Company or the insurer from time to
time.
3.10 NONASSIGNABILITY OF BENEFITS. Executive shall not transfer,
assign, encumber, or otherwise dispose of his right to receive
payments hereunder and, in the event of any attempted transfer
or assignment, the Company shall have no further liability to
Executive under this Agreement.
4. EARLY TERMINATION.
4.1 EARLY TERMINATION. Subject to the respective continuing
obligations of the parties pursuant to Section 5, this Article
4 sets forth the terms for early termination of Executive's
employment under this Agreement.
4.2 TERMINATION BY THE COMPANY FOR CAUSE. The Company may
terminate this Agreement for Cause. A termination of
employment shall be for "Cause" if the Executive (i) has been
convicted of a felony, or (ii) has engaged in an act or acts
of personal dishonesty intended to result in substantial
personal enrichment of the Executive at the expense of the
Company, or (iii) has intentionally engaged in other conduct
that is demonstrably and materially injurious to the Company,
monetarily or otherwise; PROVIDED, HOWEVER, that no
termination of the Executive's employment shall be for Cause
as set forth in clause (ii) or (iii) above until (A) there
shall have been delivered to the Executive a copy of a written
notice setting forth that the Executive has been charged with
the conduct set forth in clause (ii) or (iii) and specifying
the particulars thereof in detail; (B) the Executive shall
have been provided an opportunity to be heard by the Board
(with the assistance of the Executive's counsel if the
Executive so desires); and (C) the Board (without including
the Executive if he is a member of the Board) unanimously
determines to terminate Executive's employment.
No act nor failure to act on the Executive's part shall be
considered "intentional" unless he has acted or failed to act
with an absence of good faith and without a reasonable belief
that his action or failure to act was in the best interest of
the Company. Notwithstanding anything contained in this
Agreement to the contrary, no failure to perform by the
Executive after a Notice of Termination is given by the
Executive will constitute Cause for purposes of this
Agreement.
4.3 TERMINATION BY COMPANY WITHOUT CAUSE. The Company may
terminate Executive's employment under this Agreement or any
renewal thereof at any time, provided that the Company shall
pay Executive all compensation due to Executive under this
Agreement for the remaining term of this Agreement or any
renewal thereof, as the case may be.
4.4 TERMINATION BY EXECUTIVE FOR GOOD REASON. Executive may
terminate Executive's employment under this Agreement for Good
Reason pursuant to Sections 4.4.1 through 4.4.6 hereof only
following a Change in Control (regardless of whether an
Anticipatory Change, as hereinafter defined, has occurred) and
pursuant to Sections 4.4.7 through 4.4.9 hereof either before
or following a Change in Control. Termination by Executive for
"GOOD REASON" shall mean termination of employment based on
any one or more of the following:
4.4.1 Assignment to Executive by the Company of duties
either prior to a Change in Control at the request of
a third party who has taken steps reasonably
calculated to effect the Change in Control
("Anticipatory
6
<PAGE>
Change") or after a Change in Control which are
inconsistent with Executive's position, duties,
responsibilities, and status with the Company
immediately prior to a Change in Control of the
Company, or a change in Executive's titles or offices
as in effect immediately prior to an Anticipatory
Change or a Change in Control of the Company, or any
removal of Executive from, or any failure to reelect
or reappoint Executive to, any of such positions,
except in connection with the termination of his
employment for Disability or Cause or as a result of
Executive's death or by Executive other than for Good
Reason;
4.4.2 A reduction by the Company of Executive's Base Salary
as in effect on the date hereof or as the same may be
increased from time to time during the term of this
Agreement or the Company's failure to increase
Executive's Base Salary (within 12 months of
Executive's last increase in base salary) after a
Change in Control of the Company in an amount which
is at least 50%, on a percentage basis, of the
average percentage increase in base salary for all
Executive Officers of the Company effected during the
preceding 12 months;
4.4.3 Any failure by the Company after a Change in Control
to continue in effect, or to provide a comparable
substitute for, any benefit plan or arrangement
(including, without limitation, any profit sharing
plan, executive supplemental medical plan, group life
insurance plan, and medical, dental, accident, and
disability plans but excluding incentive plans or
arrangements, which are the subject of Section
4.4.4), in which Executive is participating at the
time of a Change in Control of the Company (or any
other plans providing Executive with substantially
similar benefits) (hereinafter referred to as
"BENEFIT PLANS"), or the taking of any action by the
Company that would adversely affect Executive's
participation in or materially reduce Executive's
benefits under any such Benefit Plan or deprive
Executive of any material fringe benefit enjoyed by
Executive at the time of a Change in Control of the
Company;
4.4.4 Any failure by the Company after a Change in Control
to continue in effect, or to provide a comparable
substitute for, any incentive plan or arrangement
(including, without limitation, any incentive
compensation plan, long-term incentive plan, bonus or
contingent bonus arrangements or credits, the right
to receive performance awards, or similar incentive
compensation benefits) in which Executive is
participating, or is eligible to participate, at the
time of a Change in Control of the Company (or any
other plans or arrangements providing him with
substantially similar benefits, which may include the
payment of cash in lieu of stock or stock options)
(hereinafter referred to as "INCENTIVE PLANS") or the
taking of any action by the Company which would
adversely affect Executive's participation in any
such Incentive Plan;
4.4.5 If at the time of a Change in Control of the Company
Executive is employed at the Company's principal
executive offices, a relocation of such principal
executive offices after a Change in Control to a
location more than fifty miles outside of the
Minneapolis-St. Paul Metropolitan Area or requiring
the Executive to be based anywhere other than the
Company's principal executive offices at the time of
a Change in Control, or, if Executive is not employed
at the Company's principal executive offices at the
time of a Change in Control, Executive's relocation
after a Change in Control to any place other than the
location at which the
7
<PAGE>
Executive principally performed Executive's duties
prior to the Change in Control, or requiring travel
by Executive on the Company's business after a Change
in Control to an extent substantially greater than
Executive's business travel obligations at the time
of the Change in Control;
4.4.6 Any failure by the Company after a Change in Control
to provide Executive with at least the number of paid
vacation days to which the Executive is entitled at
the time of a Change in Control of the Company;
4.4.7 Any material breach by the Company of any provision
of this Agreement;
4.4.8 Any failure by the Company to obtain the assumption
of this Agreement by any successor or assign of the
Company as required by Section 9.1.1 hereof; or
4.4.9 Any purported termination of Executive's employment
which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section
4.7 hereof.
4.5 TERMINATION IN THE EVENT OF DEATH OR DISABILITY. The term of
Executive's employment under this Agreement shall terminate in
the event of Executive's death or Disability, subject to the
provisions of Section 4.8 hereof.
4.6 TERMINATION BY MUTUAL AGREEMENT. The parties may terminate
Executive's employment under this Agreement at any time by
mutual written agreement.
4.7 NOTICE OF TERMINATION; DATE OF TERMINATION; OFFER OF CONTINUED
EMPLOYMENT. The provisions of this Section 4.7 shall apply in
connection with any early termination of Executive's
employment under this Agreement pursuant to this Section 4.
4.7.1 For purposes of this Agreement, a "NOTICE OF
TERMINATION" shall mean a notice which shall indicate
the specific termination provisions in this Agreement
relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide the
basis for such termination. Any purported termination
by the Company or by Executive pursuant to this
Section 4 (other than a termination by mutual
agreement pursuant to Section 4.6 or death) shall be
communicated by written Notice of Termination to the
other party hereto.
4.7.2 For purposes of this Agreement, "DATE OF TERMINATION"
shall mean: (a) if Executive's employment is
terminated due to death, the last day of the month
first following the month during which Executive's
death occurs; (b) if Executive's employment is to be
terminated for Disability, thirty (30) calendar days
after Notice of Termination is given; (c) if
Executive's employment is terminated by the Company
for Cause or by Executive for Good Reason, the date
specified in the Notice of Termination; (d) if
Executive's employment is terminated by mutual
agreement of the parties, the date specified in such
agreement; or (e) if Executive's employment is
terminated for any other reason, the date specified
in the Notice of Termination, which in no event shall
be a date earlier than thirty (30) calendar days
after the date on which a Notice of Termination is
given, unless an earlier date has been expressly
agreed to by Executive in writing either in advance
of, or after, receiving such Notice of Termination;
PROVIDED, HOWEVER, if within thirty (30) calendar
days after giving of a Notice of Termination the
recipient of the Notice of
8
<PAGE>
Termination notifies the other party that a dispute
exists concerning the termination, then, unless
otherwise determined by the arbitrator or the court
making the final determination, the Date of
Termination shall be the date on which the dispute is
finally determined, whether by mutual written
agreement of the parties, by final and binding
arbitration or by final judgment, order or decree of
a court of competent jurisdiction (the time for
appeal therefrom having expired or no appeal having
been perfected).
4.7.3 If this Agreement is terminated other than by reason
of (a) the expiration of the term hereof as described
at Section 2.4, (b) Executive's Disability or death,
(c) Executive's termination for Cause pursuant to
Section 4.2, or (d) by mutual agreement of the
parties pursuant to Section 4.6, Executive may, but
shall not be required to, not later than ten (10)
days after the Date of Termination, provide a written
offer of continued employment with the Company in
accordance with the terms of this Agreement which
terms shall, in the case of a termination by
Executive for Good Reason pursuant to Section 4.4,
include the Company taking any such steps as may be
necessary to eliminate in a manner reasonably
satisfactory to Executive any conditions which
created such Good Reason for such termination. Within
ten (10) days of its receipt of such offer, the
Company shall provide Executive with a written
acceptance or rejection of such offer. Failure of the
Company to so accept or reject such offer within such
period shall be deemed to be a rejection of such
offer. The parties hereby acknowledge that
Executive's failure to provide such offer to the
Company shall in no way impair, affect or constitute
a waiver of Executive's right to enforce the
Company's obligations under this Agreement and the
Company shall not assert such failure as a defense in
any action or proceeding by Executive to enforce the
Company's obligations under this Agreement.
4.8 COMPENSATION UPON TERMINATION, DEATH OR DURING DISABILITY.
4.8.1 If the Executive shall become disabled or
incapacitated to the extent that he is unable to
perform his duties hereunder, by reason of medically
determinable physical or mental impairment, as
determined by a doctor mutually acceptable to the
Company and the Executive and retained by the
Company, Executive shall nevertheless continue to
receive the compensation and benefits provided under
the terms of this Agreement as follows: 100% of such
compensation and benefits for a period of six months,
but not beyond the Date of Termination, and 65%
thereafter until the Date of Termination. Such
benefits noted herein shall be reduced by any
benefits otherwise provided to the Executive during
such period under the provisions of disability
insurance coverage in effect for the Company's
employees. Thereafter, Executive shall be eligible to
receive benefits provided by the Company under the
provisions of disability insurance coverage in effect
for the Company's employees. Upon returning to active
full-time employment, the Executive's full
compensation as set forth in this Agreement shall be
reinstated as of the date of commencement of such
activities. In the event that the Executive returns
to active employment on other than a full-time basis,
then his compensation (as set forth in Section 3 of
this Agreement) shall be reduced in proportion to the
time spent in said employment, or as shall otherwise
be agreed to by the parties.
9
<PAGE>
4.8.2 If Executive's employment under this Agreement is
terminated on account of Disability or death, the
Company shall, within ten (10) fiscal days following
the Date of Termination, pay any amounts due to
Executive under this Agreement through the Date of
Termination, including, without limitation, amounts
to which Executive is entitled under any Plan in
accordance with the terms of such Plan, and further
including, without limitation, a pro rata portion
(prorated through the Date of Termination) of any
Target Incentive Bonus or other annual or long-term
bonus or incentive payments (for performance periods
in effect at the Date of Termination) to which
Executive would have been entitled had Executive
remained continuously employed through the end of
such performance periods and continued to perform
Executive's duties in the same manner as performed
immediately prior to the Executive's death or
Disability.
4.8.3 If Executive's employment under this Agreement is
terminated by the Company for Cause or, except as
otherwise provided in Section 7.2.3, by Executive for
other than Good Reason, the Company shall pay
Executive only the Base Salary through the Date of
Termination and any amounts to which the Executive is
entitled under any Plan in accordance with the terms
of such Plan.
4.8.4 If Executive's employment under this Agreement is
terminated by the mutual agreement of the parties
under Section 4.6, the Company shall provide
Executive with the payments and benefits specified in
the agreement.
4.8.5 If the Company terminates Executive's employment
hereunder without Cause other than in the event of
death or Disability (it being understood that a
purported termination for Disability or for Cause
which is disputed and finally determined not to have
been proper termination for Cause or Disability shall
be a termination by the Company without Cause) or if
Executive terminates his employment hereunder for
Good Reason in accordance with Section 4.4 (except,
in each case, following a Change in Control or
pursuant to an Anticipatory Event, which shall be
governed by Section 7 hereof and not by this Section
4.8.5), the Company shall:
4.8.5.1 continue to pay Executive's Base Salary in
accordance with Section 3.1 at the annual
rate in effect hereunder immediately prior
to the Date of Termination in the same
manner as if Executive had remained
continuously employed for the unexpired term
of this Agreement;
4.8.5.2 cause Executive's continued participation in
all Plans in accordance with Section 3.2 of
this Agreement as if Executive remained
continuously employed with the Company for
the unexpired term of this Agreement for all
purposes, including, without limitation,
grants, awards, accruals and vesting
thereunder; provided that, if such continued
participation is not permissible under
applicable law, the Company shall provide
Executive with benefits substantially
similar to those to which Executive would
have been entitled under those Plans in
which Executive's continued participation is
not permissible, and
10
<PAGE>
4.8.5.3 reimburse the Executive for outplacement
expenses up to $10,000, which amount shall
be payable for services provided within the
first twelve months following the Date of
Termination upon submission to the Company
of appropriate documentation evidencing
Executive's payment for such services;
4.8.6 The payments determined pursuant to Section 4.8.5
shall be mitigated to the extent of Executive's
"earned income" within the meaning of Section
911(d)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code") during the remainder of the
period with respect to which such payments pursuant
to Section 4.8.5 are required to be paid, except if
the termination arises under Section 7, in which
event Section 7.2.5 shall govern.
5. RESTRICTIVE COVENANTS. Except as otherwise provided in this Agreement,
the Executive will not, during the period of his employment with the
Company, and for a period of one (1) year thereafter (except for
Section 5.1, with the time therein set forth), directly or indirectly,
for himself or on behalf of or in conjunction with any other person,
company, partnership, corporation or business of whatever nature:
5.1 CONFIDENTIAL INFORMATION. Reveal to any person or entity
outside of the Company, except as may be explicitly necessary
as part of the direct responsibilities of the Executive's
position with the Company, any Confidential Information.
Executive shall keep the Company's confidential documents
secure and avoid the inadvertent or intentional disclosure of
the Company's business matters inside and/or outside the
Company. Disclosure of Confidential Information within the
Company shall only be on a need-to-know basis, as is required
or necessary to carry out the Executive's duties as an
employee of the Company. Executive will use reasonable and
prudent care to safeguard and protect and prevent the
unauthorized use and disclosure of Confidential Information.
The obligations contained in this Section 5.1 will survive for
as long as the Company, in its sole judgment, considers the
information to be Confidential Information. The obligations
under this Section 5.1 will not apply to any Confidential
Information that is now or becomes generally available to the
public through no fault of Executive or to Executive's
disclosure of any Confidential Information required by law or
judicial or administrative process.
5.2 NON-COMPETITION. Directly or indirectly, own (except as a
shareholder of up to 5% of the outstanding stock in a publicly
traded corporation), manage, operate, participate in
ownership, participate in management, participate in operation
or control, or be employed by, or act as a consultant to, or
become an independent contractor with, or become an adviser
to, or be connected in any manner with, any individual or
other entity which operates a store or has an interest in a
business that meaningfully competes with the Company within an
area closer than 15 miles from any open and operating
Funcoland store or which publishes a video game magazine with
distribution in any city where Funcoland retail stores are
located, now or at the applicable time, or which sells the
Products via the internet. Notwithstanding the foregoing, it
shall not be considered that Executive is meaningfully
competing with business of the Company in the event that he is
employed by a company in which (i) the gross sales of such
company from the sale of Products either in retail stores or
via the internet and/or (ii) the revenues from a video game
magazine are less than 15% of the gross sales or revenues,
respectively, of such company (including any subsidiaries or
affiliated companies). However, in the event Executive would
be in violation of this provision, but is not working in or
directly with a division or department that is primarily
involved with Products or which publishes a video game
magazine, Executive shall not be in violation of this
provision.
11
<PAGE>
5.3 NON-ENTICEMENT. Directly or indirectly interfere with the
contractual or other relationships between the Company and any
other employees, independent contractors, consultants,
prospective employees, prospective consultants, prospective
independent contractors to the Company, to be either employed
by or retained by the Company, or induce the Company's other
employees to leave the employ of the Company.
5.4 NON-CUSTOMER INTERFERENCE. Call upon any person or entity
which is/was a customer or prospective customer or vendor of
the Company (including the Subsidiaries thereof) in direct
competition with the current Business of the Company or known
planned products or services of the Company, or its
Subsidiaries. As used herein, the term "customer" means any
entity to whom the Company, or its Subsidiaries, has provided
services within the twelve (12) month period prior to the date
of Executive's termination; the term "prospective customer"
means any entity that has been subject to documented sales and
marketing activity, other than mass mailings, by the Company,
or its Subsidiaries, within the twelve (12) month period prior
to the date of Executive's termination; and "vendor" means any
entity serving as a source for any products sold by the
Company or entity producing products or services for the
Company to enable it to provide products and services to the
Company's customers.
5.5 NON-MERGER INTERFERENCE. Call upon, for the purpose of
acquiring or performing services for such entity, any
prospective acquisition or merger candidate which was either
called upon by the Company, or its Subsidiaries, or for which
the Company, or its Subsidiaries, made an acquisition or
merger analysis during the six (6) month period prior to the
date of Executive's termination.
5.6 INTERPRETATION. It is agreed by the parties that the foregoing
covenants in Sections 5.1 through 5.5, inclusive, impose a
reasonable restraint on Executive in light of the Company's
Business and related activities on the date of the execution
of this Agreement.
5.7 REMEDIES. Executive agrees that any breach or threatened
breach of the covenants set forth in this Section 5 will cause
the Company irreparable harm for which there is no adequate
remedy at law, and, without limiting other rights and remedies
the Company may have at law or under and pursuant to this
Agreement, Executive consents to remedies pursuant to this
Section 5.7, including, but not limited to, the issuance of an
injunction in favor of the Company enjoining the breach of any
of the aforesaid covenants by any court of appropriate
jurisdiction. Such injunction shall provide the Company with
at least a one (1) year contractual protection agreed to by
the parties, and in the event the Executive violates the terms
of the injunction, Executive agrees that a court of
appropriate jurisdiction shall have the power to extend the
length or breadth of the injunction to provide the Company
with the full measure of protection intended by this
Agreement, including, but not limited to, the extension of
such injunction for a reasonable period of time in order to
eliminate any commercial advantage which may be derived from a
misappropriation of Confidential Information or a breach or
default of the covenants set forth in Sections 5.2 through
5.5, inclusive. If any or all of the aforesaid covenants are
held not to be enforceable because of the scope or duration of
such covenant, or if applicable, the area covered by such
covenants, the parties agree that a court of appropriate
jurisdiction shall make such determination, and the court
shall have the power to reduce the scope, duration, and area
of any covenant (or one or more of the foregoing) to the
extent which allows maximum scope, duration and area as
permitted by applicable law. The covenants in this Section 5
protect not only the Company but also any operations
controlled by the Company or controlling the Company, whether
a Parent Corporation, Subsidiary, brother/sister corporation
or affiliate. The Executive shall pay reasonable attorneys'
fees, costs and expenses that may be incurred by the Company
in enforcing one or
12
<PAGE>
more of the covenants set forth in this Section 5. Section 5
shall have independent legal significance and shall survive
termination of this Agreement.
6. INVENTIONS.
6.1 DISCLOSURE AND ASSIGNMENT OF INVENTIONS AND OTHER WORKS.
Executive shall promptly disclose to the Company in writing
all Inventions and Works of Authorship which are conceived,
made, discovered, written or created by Executive alone or
jointly with another person, group or entity, whether during
the normal hours of his employment at the Company or on
Executive's own time, during the term of this Agreement and
for one year after termination of this Agreement. Executive
shall assign all rights to all such Inventions and Works of
Authorship to the Company. Executive shall give the Company
all the assistance it reasonably requires in order for Company
to perfect, protect, and use its rights to Inventions and
Works of Authorship. Executive shall sign all such documents,
take all such actions and supply all such information that the
Company considers necessary or desirable in order to transfer
or record the transfer of Executive's entire right, title and
interest in such Inventions and Works of Authorship; and in
order to enable the Company to obtain exclusive patent,
copyright, or other legal protection for Inventions and Works
of Authorship. The Company shall bear any reasonable expenses
in this regard.
6.2 NOTICE: MINNESOTA LAW EXEMPTS FROM THIS AGREEMENT "AN
INVENTION FOR WHICH NO EQUIPMENT, SUPPLIES, FACILITY OR TRADE
SECRET INFORMATION OF THE COMPANY WAS USED AND WHICH WAS
DEVELOPED ENTIRELY ON THE EXECUTIVE'S OWN TIME, AND (1) WHICH
DOES NOT RELATE (a) TO THE BUSINESS OF THE COMPANY OR (b) TO
THE COMPANY'S ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR
DEVELOPMENT, OR (2) WHICH DOES NOT RESULT FROM ANY WORK
PERFORMED BY THE EXECUTIVE FOR THE COMPANY."
6.3 ADDITIONAL EXCLUSIONS. The Inventions and Works of Authorship
set forth in Schedule A (if no Schedule A is attached, there
is nothing to disclose) to this Agreement which Executive owns
or controls shall also be excluded from operation of Section
6.1 of this Agreement, and Executive represents that such
Inventions and Works of Authorship were conceived, made,
written, or created by him prior to employment with the
Company (although they may be useful to the Company), its
Subsidiaries or affiliates. Other than the Inventions and
Works of Authorship listed in Schedule A, Executive does not
own or control rights in any Inventions or Works of Authorship
and Executive shall not assert any such rights against the
Company.
7. CHANGE IN CONTROL.
7.1 DEFINITIONS. For the purposes of this Agreement, the following
words and phrases shall have the following meanings:
7.1.1 "CHANGE IN CONTROL" shall mean any of the following
events:
7.1.1.1 an acquisition of any voting securities of
the Company (the "VOTING SECURITIES") by any
"PERSON" (as the term person is used for
purposes of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934 (the
"EXCHANGE ACT")), immediately after which
such Person (other than the Executive or any
group that includes the Executive) has
"BENEFICIAL OWNERSHIP" (within the meaning
of Rule 13d-3 promulgated under the Exchange
Act) of 35% or more of the combined voting
power of the Company's then outstanding
Voting Securities; PROVIDED,
13
<PAGE>
HOWEVER, that in determining whether a
Change in Control has occurred, Voting
Securities that are acquired in a
"NON-CONTROL ACQUISITION" (as hereinafter
defined) shall not constitute an acquisition
which would cause a Change in Control. A
"NON-CONTROL ACQUISITION" shall be an
acquisition by
(A) an employee benefit plan (or a trust
forming a part thereof) maintained by
(1) the Company or (2) any corporation
or other person of which a majority of
the voting power or voting equity
securities or equity interest is
owned, directly or indirectly, by the
Company (for purposes of this
definition a "SUBSIDIARY"),
(B) the Company or any of its
Subsidiaries,
(C) any person in connection with a
"NON-CONTROL TRANSACTION" (as
hereinafter defined), or
(D) the Executive or any group that
includes the Executive;
7.1.1.2 the individuals who, as of the date hereof,
are members of the Board (the "INCUMBENT
BOARD") and other individuals who, as
provided below, are considered members of
the Incumbent Board, cease for any reason to
constitute a majority of the members of the
Board; PROVIDED, HOWEVER, that if the
election, or nomination for election by the
Company's common shareholders, of any new
director was approved by a vote of a
majority of the Incumbent Board, such new
director shall, for purposes of this
Agreement, be considered a member of the
Incumbent Board; PROVIDED FURTHER, HOWEVER,
that no individual shall be considered a
member of the Incumbent Board if such
individual initially assumed office as a
result of either an actual or threatened
"ELECTION CONTEST" (as described in Rule
14a-11 promulgated under the Exchange Act)
or other actual or threatened solicitation
of proxies or consents by or on behalf of a
person other than the Board (a "PROXY
CONTEST") including by reason of any
agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
7.1.1.3 approval by the shareholders of the Company
of:
(A) a merger, consolidation, statutory
share exchange, or reorganization
involving the Company, unless such
merger, consolidation, statutory share
exchange, or reorganization is a
"NON-CONTROL TRANSACTION." A
"NON-CONTROL TRANSACTION" shall mean a
merger, consolidation, statutory share
exchange, or reorganization of the
Company where:
14
<PAGE>
(1) the shareholders of the Company
immediately before such merger,
consolidation, statutory share
exchange, or reorganization, own
directly or indirectly
immediately following such
merger, consolidation, statutory
share exchange, or
reorganization more than 65% of
the combined voting power of the
outstanding voting securities of
the corporation resulting from
such merger, consolidation,
statutory share exchange, or
reorganization (the "SURVIVING
CORPORATION") in substantially
the same proportion as their
ownership of the Voting
Securities immediately before
such merger, consolidation,
statutory share exchange, or
reorganization,
(2) the individuals who were members
of the Incumbent Board
immediately prior to the
execution of the agreement
providing for such merger,
consolidation, statutory share
exchange, or reorganization
constitute a majority of the
members of the board of
directors of the Surviving
Corporation, or a corporation
beneficially directly or
indirectly owning a majority of
the voting securities of the
Surviving Corporation, and
(3) no Person other than
a) the Company,
b) any Subsidiary,
c) any employee benefit plan
(or any trust forming a
part thereof) maintained
by the Company, the
Surviving Corporation, or
any Subsidiary,
d) any person who immediately
prior to such merger,
consolidation, statutory
share exchange, or
reorganization had
Beneficial Ownership of
35% or more of the then
outstanding Voting
Securities, or
e) the Executive or any group
that includes the
Executive,
has Beneficial Ownership of 35%
or more of the combined voting
power of
15
<PAGE>
the Surviving Corporation's then
outstanding voting securities;
(B) a complete liquidation or dissolution
of the Company; or
(C) an agreement for the sale or other
disposition of all or substantially
all of the assets of the Company to
any Person (other than a transfer to a
Subsidiary), except for a Non-Control
Transaction) (provided that for
purposes of determining whether a
transaction is a Non-Control
Transaction, the disposition of assets
shall be deemed to constitute a merger
and the transferee of the assets shall
be deemed to be the Surviving
Corporation).
7.1.1.4 Notwithstanding the foregoing, a Change in
Control shall not be deemed to occur solely
because any Person (the "SUBJECT PERSON")
acquired beneficial ownership of more than
the permitted amount of the then outstanding
Voting Securities as a result of the
acquisition of Voting Securities by the
Company (other than an acquisition proposed
by or on behalf of, or pursuant to any
agreement or arrangement with, the Subject
Person) which, by reducing the number of
Voting Securities then outstanding,
increases the proportional number of shares
beneficially owned by the Subject Person;
PROVIDED, HOWEVER, that if a Change in
Control would occur (but for the operation
of this sentence) as a result of the
acquisition of Voting Securities by the
Company, and after such share acquisition by
the Company, the Subject Person becomes
beneficial owner of any additional Voting
Securities that increases the percentage of
the then outstanding Voting Securities
beneficially owned by the Subject Person to
35% or more, then, subject to any applicable
exceptions in Sections 7.1.1.1 or 7.1.1.3, a
Change in Control shall have occurred.
7.2 PAYMENTS AND BENEFITS UPON A CHANGE IN CONTROL. If Executive
is employed by the Company upon the occurrence of a Change in
Control, or if Executive's termination of employment
constitutes an Anticipatory Event, the following provisions
shall govern:
7.2.1 If an Anticipatory Event occurs or if, during the
first twenty-four months following the Change in
Control, the Company terminates the Executive's
employment other than for Cause or Disability or
death, or the Executive terminates his employment for
Good Reason, the Executive shall receive from the
Company in a lump sum, in cash, on the fifth (5th)
day following the Date of Termination (or, with
respect to an Anticipatory Event, the fifth (5th) day
following the Change in Control), all amounts earned
or accrued through the Date of Termination but not
paid as of the Date of Termination, including his
Base Salary, reimbursement for reasonable and
necessary expenses incurred by the Executive on
behalf of the Company prior to the Date of
Termination, vacation pay, and sick leave, a pro rata
portion (prorated through the Date of Termination) of
the
16
<PAGE>
Target Incentive Bonus in effect for the fiscal year
in which the Executive's employment is terminated
under this Section 7.2.1, and an amount equal to two
(2) times the Executive's Base Salary and Target
Incentive Bonus in effect at the Date of Termination.
7.2.2 If, during the first twenty-four months following the
Change in Control, the Executive terminates his
employment other than (i) for Good Reason or (ii)
under the conditions set forth in Section 7.2.3 or if
his employment is terminated for Cause or Disability
or on account of his death, the Company shall pay the
Executive all amounts earned or accrued through the
Date of Termination but not paid as of the Date of
Termination, including his Base Salary, reimbursement
for reasonable and necessary expenses incurred by the
Executive on behalf of the Company prior to the Date
of Termination, vacation pay, and sick leave. If the
Executive's employment is terminated by the Company
for Disability or by reason of the Executive's death,
the Company shall pay to the Executive or his
Beneficiaries the compensation provided in Sections
4.8.1 and 4.8.2 hereof. The Executive's entitlement
to any other compensation or benefits shall be
determined in accordance with the Company's employee
benefit plans and other applicable programs and
practices then in effect.
7.2.3 In the event that the Executive terminates his
employment (upon at least three months' notice) at
the end of the first fifteen (15) months of
employment after the Change in Control for other than
Good Reason, the Executive shall be entitled to a
severance benefit of one year's Base Salary and
Target Incentive Bonus, but shall waive any further
benefits hereunder except those provided in Section
7.2.2.
7.2.4 In the event of termination of Executive's employment
under Section 7.2.1, Executive shall be entitled to
continue to participate in the Company's group
medical, dental, life and disability plans and to
receive payment of an automobile allowance on the
same basis as Executive participated or received
immediately prior to the Notice of Termination (or
shall receive equivalent benefits) for a period of
two (2) years following the Date of Termination, or,
with respect to an Anticipatory Event, the date of
the Change in Control. Executive shall be responsible
for payment of premiums and expenses to the same
extent as prior to the Notice of Termination. In the
event that Executive obtains substantially equivalent
coverage or benefits from another source, the
Company's obligation under this Section 7.2.4 shall
terminate.
7.2.5 Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement
by seeking other employment or otherwise, and no such
payment shall be offset or reduced by the amount of
any compensation or benefits provided to the
Executive in any subsequent employment except as
provided in Section 7.2.4.
7.2.6 The severance pay and benefits provided for in
Sections 7.2.1 and 7.2.3 are in lieu of any other
severance pay to which the Executive may be entitled
under any other Company severance plan, program or
arrangement.
7.2.7 In the event the Executive's employment is terminated
without Cause or Executive for Good Reason terminates
his employment and Section 7.2.1 is applicable under
the circumstances of such termination,
17
<PAGE>
the restrictive covenants set forth in Section 5 of
this Agreement (except for Section 5.1) shall no
longer be effective.
7.3 EXCISE TAX PAYMENTS.
7.3.1 In the event that any payment or benefit (within the
meaning of Section 280G(b)(2) of the Code), paid or
payable to the Executive or for his benefit or
distributed or distributable pursuant to the terms of
this Agreement or otherwise in connection with, or
arising out of, his employment with the Company or a
Change in Control of the Company (a "PAYMENT" or
"PAYMENTS"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest
or penalties become payable by the Executive with
respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter
collectively referred to as the "EXCISE TAX"), then
the Executive will be entitled to receive an
additional payment (a "GROSS-UP PAYMENT") in an
amount such that after payment by the Executive of
all taxes (including any interest or penalties, other
than interest and penalties imposed by reason of the
Executive's failure to file timely a tax return or
pay taxes shown as due on his return, imposed with
respect to such taxes and the Excise Tax), including
any Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments,
PROVIDED, HOWEVER, that in no event shall the amount
of the Gross-Up Payment exceed an amount equal to
100% of the Executive's Base Salary and Target
Incentive Bonus in effect at the Date of Termination.
7.3.2 An initial determination as to whether a Gross-Up
Payment is required pursuant to this Agreement and
the amount of such Gross-Up Payment shall be made at
the Company's expense by an accounting firm selected
by the Company and reasonably acceptable to the
Executive which is designated as one of the five
largest accounting firms in the United States (the
"ACCOUNTING FIRM"). The Accounting Firm shall provide
its determination (the "DETERMINATION"), together
with detailed supporting calculations and
documentation, to the Company and the Executive
within five days of the Date of Termination, if
applicable, or such other time as requested by the
Company or by the Executive (provided the Executive
reasonably believes that any of the Payments may be
subject to the Excise Tax). If the Accounting Firm
determines that no Excise Tax is payable by the
Executive with respect to a Payment or Payments, it
shall furnish the Executive with an opinion
reasonably acceptable to the Executive that no Excise
Tax will be imposed with respect to any such Payment
or Payments. Within ten days of the delivery of the
Determination to the Executive, the Executive shall
have the right to dispute the Determination (the
"DISPUTE"). The Gross-Up Payment, if any, as
determined pursuant to this Section 7.3.2 shall be
paid by the Company to the Executive within five days
of the receipt of the Determination. The existence of
the Dispute shall not in any way affect the
Executive's right to receive the Gross-Up Payment in
accordance with the Determination. Upon the final
resolution of a Dispute, the Company shall promptly
pay to the Executive any additional amount required
by such resolution, or, if it is determined that the
Excise Tax is lower than originally determined, the
Executive shall repay to the Company the excess
amount of the Gross-Up Payment. If there is no
Dispute, the Determination shall be binding, final
and conclusive upon
18
<PAGE>
the Company and the Executive subject to the
application of Section 7.3.3 below.
7.3.3 Notwithstanding anything contained in this Agreement
to the contrary, in the event that, according to the
Determination, an Excise Tax will be imposed on any
Payment or Payments, the Company shall pay to the
applicable government taxing authorities as Excise
Tax withholding, the amount of the Excise Tax that
the Company has actually withheld from the Payment or
Payments.
7.4 FEES AND EXPENSES. The Company shall pay all legal fees and
related expenses (including the costs of experts, evidence and
counsel) incurred by the Executive as they become due as a
result of (a) the Executive's seeking to obtain or enforce any
right or benefit provided by this Agreement or by any other
plan or arrangement maintained by the Company under which the
Executive is or may be entitled to receive benefits; or (b)
the Executive's hearing before the Board as contemplated in
Section 4.2 of this Agreement; PROVIDED, HOWEVER, that the
circumstances set forth in Clauses (a) and (b) of this Section
7.4 occurred on or after a Change in Control or an
Anticipatory Event has occurred.
8. ARBITRATION. Except as may be otherwise provided in this Agreement, any
and all controversies or disputes, of whatever nature, between or among
the parties involving the meaning of words or provisions under this
Agreement, whether there has been a material breach or default hereof,
or whether the dispute or controversy is subject to arbitration, shall
be settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association by a sole arbitrator and
judgment upon any award rendered by the arbitrator shall be conclusive,
final, and binding, and may be entered in any court of appropriate
jurisdiction. With respect to such arbitration:
8.1 All questions as to the meaning of the above clause, shall be
resolved by the arbitrator and a decision thereon shall be
binding and not subject to judicial review.
8.2 Each party shall have the right to seek from a court of
appropriate jurisdiction equitable or provisional remedies
(such as temporary restraining orders, temporary injunctions,
and the like) before arbitration proceedings have been
commenced and an arbitrator has been selected, but once an
arbitrator has been selected and the arbitration proceedings
are continuing, thereafter the sole jurisdiction with respect
to equitable or provisional remedies shall be remanded to the
arbitrator.
8.3 Any arbitrator shall be a retired judge or an attorney who has
been licensed to practice for at least ten (10) years and is
currently licensed to practice in the state of Minnesota.
8.4 All arbitration proceedings shall be in the Association's
office in Minneapolis, Minnesota, or at such other location as
the parties may agree.
8.5 The arbitrator shall be selected by the parties within fifteen
(15) business days after a request for arbitration has been
made by one of the parties hereto. If the parties are unable
to agree among themselves, the parties shall ask for a panel
of arbitrators to be submitted by the American Arbitration
Association. If the parties are unable to select a sole
arbitrator from the panel supplied by the American Arbitration
Association within twenty (20) business days after such
submission, then the American Arbitration Association shall
select the sole arbitrator.
8.6 The arbitrator shall have the discretion to award attorneys'
fees and costs in favor of any party if, in the opinion of the
arbitrator, the dispute arose because one of the
19
<PAGE>
parties was not acting in good faith, or was in material
breach or default of any covenants, representations, terms
and/or conditions of this Agreement. If no such finding by the
arbitrator is made, each of the parties to the arbitration
shall bear the cost of their respective attorneys and their
own expenses, but share equally the cost of said arbitration
proceeding and the cost of the arbitrator. However, in the
event the arbitration proceeding involves a claim pursuant to
Section 5 or 7, any term or condition within Section 5 or 7
which is in conflict with any term or condition of this
Section 8 shall supersede and control over any provision in
this Section 8 to the contrary.
8.7 Any award of the arbitrator may be entered in any court of
appropriate jurisdiction pursuant to Minn. Stat. ss.572.08 et
seq., which statutes, relating to arbitration, are
incorporated herein by reference.
8.8 The arbitrator shall not have the authority to award exemplary
or punitive damages.
8.9 Any award of the arbitrator shall be based upon applicable
law, but findings of fact and conclusions of law shall not be
submitted as part of any award.
9. GENERAL PROVISIONS.
9.1 SUCCESSORS AND ASSIGNS.
9.1.1 This Agreement shall be binding upon and shall inure
to the benefit of the Company, its successors and
assigns and the Company shall require any successor
or assign to expressly assume and agree to perform
this Agreement in the same manner and to the same
extent that the Company would be required to perform
it if no such succession or assignment had taken
place. The term "COMPANY" as used herein shall
include such successors (including a Surviving
Corporation) and assigns. The terms "SUCCESSORS" or
"SUCCESSORS AND ASSIGNS" as used herein each shall
mean a corporation or other entity acquiring all or
substantially all the assets and business of the
Company (including this Agreement) whether by
operation of law or otherwise.
9.1.2 Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the
Executive, his beneficiaries or legal
representatives, except by will or the laws of
descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the
Executive's legal personal representative.
9.2 NO OFFSETS. In no event shall any amount payable to Executive
pursuant to this Agreement be reduced for purposes of
offsetting, either directly or indirectly, any indebtedness or
liability of Executive to the Company.
9.3 NOTICES. All notices, requests and demands given to or made
pursuant hereto shall, except as otherwise specified herein,
be in writing and be personally delivered or mailed postage
prepaid, registered or certified US mail to any party at its
address set forth on the last page of this Agreement. Either
party may, by notice hereunder, designate a changed address.
Any notice hereunder shall be deemed effectively given and
received: (1) if personally delivered, upon delivery; or (2)
if mailed, on the registered date or the date stamped on the
certified mail receipt.
9.4 WITHHOLDING. To the extent required by any applicable law,
including, without limitation, any federal, state or local
income tax or excise tax law or laws, the Federal
20
<PAGE>
Insurance Contributions Act, the Federal Unemployment Tax Act
or any comparable federal, state or local laws, the Company
retains the right to withhold such portion of any amount or
amounts payable to Executive under this Agreement as the
Company (on the written advice of outside counsel) deems
necessary.
9.5 CAPTIONS. The various headings or captions in this Agreement
are for convenience only and shall not affect the meaning or
interpretation of this Agreement.
9.6 GOVERNING LAW. The validity, interpretation, construction,
performance, enforcement and remedies of or relating to this
Agreement, and the rights and obligations of the parties
hereunder, shall be governed by the substantive laws of the
State of Minnesota (without regard to the conflict of laws,
rules or statutes of any jurisdiction), and any and every
legal proceeding arising out of or in connection with this
Agreement shall be brought in the appropriate courts of the
State of Minnesota, each of the parties hereby consenting to
the exclusive jurisdiction of said courts for this purpose.
9.7 CONSTRUCTION. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision
of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining
provisions of this Agreement.
9.8 WAIVERS. No failure on the part of either party to exercise,
and no delay in exercising, any right or remedy hereunder
shall operate as a waiver thereof; nor shall any single or
partial exercise of any right or remedy hereunder preclude any
other or further exercise thereof or the exercise of any other
right or remedy granted hereby or by any related document or
by law.
9.9 MODIFICATION. This Agreement may not be modified or amended
except by written instrument signed by the parties hereto.
9.10 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties hereto in
reference to all the matters herein agreed upon. This
Agreement replaces in full all prior employment agreements or
understandings of the parties hereto, except stock option
agreements, and any and all such prior agreements or
understandings, except stock option agreements, are hereby
rescinded by mutual agreement.
9.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original
but all of which together will constitute one and the same
instrument.
9.12 SURVIVAL. The parties expressly acknowledge and agree that the
provisions of this Agreement which by their express or implied
terms extend beyond the termination of Executive's employment
hereunder, shall continue in full force and effect
notwithstanding Executive's termination of employment
hereunder or the termination of this Agreement, respectively.
9.13 RIGHT TO COUNSEL. Employee acknowledges he is aware of his
right to obtain independent legal counsel of his own choosing
with respect to any matter or issue made or created by or
under this Agreement. Execution of this Agreement by the
Executive is an acknowledgement by the Executive that either
he has had the opportunity to review this Agreement to his own
satisfaction, has read and understood the terms and conditions
of this Agreement, has consulted with an attorney and has
21
<PAGE>
had the terms and conditions of this Agreement satisfactorily
explained to him, or has waived the right to seek his own
independent counsel, but nonetheless, acknowledges that he
understands the terms of this Agreement, and this Agreement is
executed and delivered freely and voluntarily by the Executive
without any force or coercion from the Company or any other
third party.
IN WITNESS WHEREOF, the parties hereto have caused this Executive
Employment Agreement to be duly executed and delivered as of the day and year
first above written.
COMPANY:
FUNCO, INC., a Minnesota corporation
By: /s/ Stanley A. Bodine
-----------------------------------------
Name Stanley A. Bodine
------------------------------------
Its President and Chief Operating Officer
EXECUTIVE:
/s/ David R. Pomije
-----------------------------------------
David R. Pomije
Address: 3120 North Shore Drive
Orono, Minnesota 55391
22
EXHIBIT 10.4 EXECUTIVE EMPLOYMENT AGREEMENT WITH STANLEY A. BODINE
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("AGREEMENT"), effective the 19th
day of May, 1999, is by and between Funco, Inc., a Minnesota corporation
("COMPANY"), and Stanley A. Bodine ("EXECUTIVE"), a Minnesota resident.
RECITALS:
A. Executive is currently employed by the Company in the capacity
of President and Chief Operating Officer.
B. The Company is currently engaged in the sale of new and
previously played video games and video game equipment (the
"PRODUCTS") in its retail Funcoland stores, on its website, by
mail order, and to wholesale distributors, and the publication
of a magazine styled the "THE GAME INFORMER"(hereafter the
"COMPANY'S BUSINESS").
C. Executive has learned certain unique skills, talents,
contacts, judgment and knowledge, all to the benefit of the
Company, and has knowledge of the Company's Business,
strategies, and objectives.
D. The Board of Directors of the Company (the "BOARD") recognizes
that the possibility of a Change in Control (as hereinafter
defined) exists and that the threat or occurrence of a Change
in Control can result in significant distractions of the
Company's key management personnel because of the
uncertainties inherent in such a situation.
E. The Board has determined that it is essential and in the best
interest of the Company and its shareholders to retain the
services of the Executive in the event of the threat or
occurrence of a Change in Control and to ensure his continued
dedication and efforts in such event without undue concern for
his personal financial and employment security.
F. In order to induce the Executive to remain in the employ of
the Company, particularly in the event of a threat or
occurrence of a Change in Control, the Company desires to
enter into this Agreement with the Executive to provide the
Executive with certain payments and benefits during his
employment and following a Change in Control in the event his
employment is terminated as a result of, or in connection
with, a Change in Control.
In consideration of the foregoing Recitals, and the parties' mutual
covenants and undertakings contained in this Agreement, the Company and the
Executive agree as follows:
1. DEFINITIONS. Capitalized terms used in this Agreement shall have their
defined meaning throughout the Agreement. The following terms shall
have the meanings set forth below, unless the context clearly requires
otherwise.
1.1 "AGREEMENT" means this Executive Employment Agreement, as from
time to time amended.
1.2 "ANTICIPATORY EVENT" means the termination of Executive's
employment during the term of this Agreement or any renewal
thereof and prior to a Change in Control if it is reasonably
demonstrated by Executive that such termination (i) was at the
request of a third party who has taken steps reasonably
calculated to effect the Change in Control or (ii) otherwise
arose in connection with or anticipation of a Change in
Control.
<PAGE>
1.3 "BASE SALARY" means the total annual cash compensation payable
on a regular periodic basis, without regard to voluntary or
mandatory deferrals, as set forth at Section 3.1 of this
Agreement.
1.4 "BENEFICIARY" means the person or persons designated in
writing to the Company by Executive to receive any benefits
payable after Executive's death pursuant to this Agreement. In
the absence of such designation or in the event that all of
the persons so designated predecease Executive, Beneficiary
means the executor, administrator or personal representative
of Executive's estate.
1.5 "BOARD" means the Board of Directors of the Company.
1.6 "CAUSE" has the meaning set forth at Section 4.2 of this
Agreement.
1.7 "CHANGE IN CONTROL" has the meaning set forth at Section 7.1.1
of this Agreement.
1.8 "COMPANY" means all of the following, jointly and severally:
(a) Funco, Inc. and (b) any Successor.
1.9 "CONFIDENTIAL INFORMATION" means information that is
proprietary to the Company or proprietary to others and
entrusted to the Company, whether or not trade secrets, and
including, but not limited to, the Company's business plans,
advertising and/or marketing plans, financial performance,
financial projections, subscriber list, any other customer
lists, pricing information (prior to publication), personnel
matters, or any other matter considered or reasonably expected
to be considered confidential by the Company regarding the
Company's business and its employees.
1.10 "DATE OF TERMINATION" has the meaning set forth at Section
4.7.2 of this Agreement.
1.11 "DISABILITY" shall mean a physical or mental infirmity which
impairs the Executive's ability to substantially perform his
duties if it continues for a period of at least 180
consecutive days. Notwithstanding anything contained in this
Agreement to the contrary, until the Date of Termination
specified in a Notice of Termination relating to the
Executive's Disability, the Executive shall be entitled to
return to his position with the Company, in which event no
Disability of the Executive will be deemed to have occurred.
1.12 "EXECUTIVE" means Stanley A. Bodine, and "Executive Officers"
means the Executive and Jeffrey R. Gatesmith, Robert M. Hiben
and David R. Pomije (as long as they continue to be officers
of the Company), and any individuals who may subsequently
serve in the same, or substantially the same, positions,
whether or not holding the same title.
1.13 "GOOD REASON" has the meaning set forth at Section 4.4 of this
Agreement.
1.14 "INCENTIVE BONUS" means the annual cash bonus payable to the
Executive as set forth in Section 3.1 of this Agreement.
1.15 "NOTICE OF TERMINATION" has the meaning set forth at Section
4.7.1 of this Agreement.
1.16 "PARENT CORPORATION" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the
Company if at the time the corporation other than the Company
owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations
in the chain.
2
<PAGE>
1.17 "PLAN" means any bonus or incentive compensation agreement,
plan, program, policy or arrangement sponsored, maintained or
contributed to by the Company, to which the Company is a party
or under which employees of the Company are covered,
including, without limitation, any stock option, restricted
stock or any other equity-based compensation plan, annual or
long-term incentive (bonus) plan, and any employee benefit
plan, such as a thrift, pension, profit sharing, deferred
compensation, medical, dental, disability, accident, life
insurance, automobile allowance, perquisite, fringe benefit,
vacation, sick or parental leave, severance or relocation plan
or policy or any other agreement, plan, program, policy or
arrangement intended to benefit employees or executive
officers of the Company.
1.18 "SUBSIDIARY" means any corporation at least a majority of
whose securities having ordinary voting power for the election
of directors (other than securities having such power only by
reason of the occurrence of a contingency) is at the time
owned by the Parent Corporation, the Company and/or one or
more Subsidiaries.
1.19 "SUCCESSOR" has the meaning set forth at Section 9.1.1 of this
Agreement.
1.20 "INVENTIONS" means ideas, improvements and discoveries,
whether or not such are patentable or copyrightable, and
whether or not in writing or reduced to practice.
1.21 "WORKS OF AUTHORSHIP" means writings, drawings, software, and
any other works of authorship, whether or not such are
copyrightable.
2. EMPLOYMENT, DUTIES AND TERM.
2.1 EMPLOYMENT. Upon the terms and conditions set forth in this
Agreement, the Company hereby employs Executive, and Executive
accepts such employment, as President and Chief Operating
Officer of the Company. Except as expressly provided herein,
termination of this Agreement by either party or by mutual
agreement of the parties shall also terminate Executive's
employment by the Company.
2.2 DUTIES. During the term of this Agreement, and excluding any
periods of vacation, sick, disability or other leave to which
Executive is entitled, Executive agrees to devote reasonable
attention and time during normal business hours to the
business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to
Executive hereunder and under the Company's bylaws, as amended
from time to time, to use Executive's reasonable best efforts
to perform faithfully and efficiently such responsibilities.
During the term of this Agreement, it shall not be a violation
of this Agreement for Executive to serve on corporate, civic
or charitable boards or committees, deliver lectures, fulfill
speaking engagements or teach at educational institutions and
manage personal investments, so long as such activities do not
significantly interfere with the performance of Executive's
responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been
conducted by Executive prior to the date of this Agreement,
the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to
the date of this Agreement shall not thereafter be deemed to
interfere with the performance of Executive's responsibilities
to the Company. Executive shall reasonably comply with the
Company policies and procedures; PROVIDED, that to the extent
such policies and procedures are inconsistent with this
Agreement, the provisions of this Agreement shall control.
2.3 CERTAIN PROPRIETARY INFORMATION. If Executive possesses any
proprietary information of another person or entity as a
result of prior employment or relationship, Executive
3
<PAGE>
shall honor any legal obligation that Executive has with that
person or entity with respect to such proprietary information.
2.4 TERM. This Agreement shall be effective as of the date set
forth above, and shall be in effect until March 31, 2001,
provided that, commencing on March 31, 2001, and on each March
31 thereafter, the term of this Agreement shall be renewed
automatically for the subsequent one-year period unless either
the Executive or the Company gives written notice to the other
party of its intent not to so extend this Agreement at least
60 days prior to the end of the term of this Agreement or the
applicable renewal period, as the case may be, or, if a Change
in Control has occurred during the term of this Agreement or
any renewal thereof, this Agreement shall be in effect for a
period of two (2) years following the date of the Change in
Control; PROVIDED, HOWEVER, that notwithstanding any such
notice by the Company not to extend, this Agreement and the
benefits provided hereunder shall not be terminated if prior
to the expiration of this Agreement an Anticipatory Event
shall have occurred, in which event, this Agreement shall
terminate only after such Person publicly announces that it
has abandoned all efforts to effect a Change in Control or, if
a Change in Control shall occur, two years following the
Change in Control.
2.5 RETURN OF PROPRIETARY PROPERTY. Executive agrees that all
property in Executive's possession belonging to the Company,
including without limitation, all documents, reports, manuals,
memoranda, computer print-outs, customer lists, credit cards,
keys, identification, products, access cards, automobiles and
all other property relating in any way to the business of the
Company are the exclusive property of the Company, even if
Executive authored, created or assisted in authoring or
creating such property. Executive shall return to the Company
all such documents and property immediately upon termination
of employment or at such earlier time as the Company may
reasonably request.
3. COMPENSATION, BENEFITS AND EXPENSES.
3.1 BASE SALARY/INCENTIVE BONUS. Subject to Section 4.8, during
the term of Executive's employment under this Agreement and
for as long thereafter as required pursuant to Section 4, the
Company shall pay Executive a Base Salary at an annual rate
that is not less than Two Hundred Fifty Thousand Dollars
($250,000.00) or such higher annual rate as may from time to
time be approved by the Board, such Base Salary to be paid in
substantially equal regular periodic payments in accordance
with the Company's regular payroll practices. If Executive's
Base Salary is increased from time to time during the term of
Executive's employment under this Agreement, the increased
amount shall become the Base Salary for the remainder of the
term and any extensions of Executive's term of employment
under this Agreement and for as long thereafter as required
pursuant to Section 4, subject to any subsequent increases. In
addition, the Executive shall be entitled to an annual
Incentive Bonus of 30% of Base Salary ("Target Incentive
Bonus"), contingent upon and adjusted by the Company's
achievement of goals defined by the Compensation Committee of
the Board.
3.2 OTHER COMPENSATION AND BENEFITS. During the term of
Executive's employment under this Agreement and for as long
thereafter as required pursuant to Section 4, the Company
shall continue in full force and effect all Plans in which
Executive is participating as of the date of this Agreement or
in which Executive becomes entitled to participate after the
date of this Agreement (or Plans providing Executive with at
least substantially similar benefits) other than as a result
of the normal expiration of any such Plan in accordance with
its terms as in effect as of the date of this Agreement or the
date as of which Executive first becomes entitled to
participate in such Plan, as the case may be, and shall not
take or omit to take any action that would adversely affect
Executive's continued participation in any such Plans on at
least as favorable a basis
4
<PAGE>
to Executive as is the case on the date of this Agreement or
the date as of which Executive first becomes entitled to
participate in such Plan, as the case may be, or which would
materially reduce Executive's benefits in the future under any
such Plans or deprive Executive of any material benefit
enjoyed by Executive as of the date of this Agreement or the
date as of which Executive first becomes entitled to
participate in such Plan, as the case may be. Executive shall
be entitled to participate in or receive benefits under any
Plan made available by the Company in the future to its
executives and key management employees, subject to and on a
basis consistent with the terms, conditions and overall
administration of such Plans. Nothing paid to Executive under
any Plan presently in effect or made available in the future
shall be deemed to be in lieu of the Base Salary, bonuses,
incentives or compensation of any other nature otherwise
payable to Executive.
3.3 VACATION. For the 2000 fiscal year and each subsequent fiscal
year that begins during the term of Executive's employment
under this Agreement and for each fiscal year thereafter as
required pursuant to Section 4 of this Agreement, Executive
shall be entitled to four weeks paid vacation. The time or
times at which such paid vacation is to be taken shall be
reasonably determined by Executive consistent with Executive's
duties and obligations under this Agreement. Any such vacation
with respect to a fiscal year that is unused as of the last
day of such fiscal year shall be carried forward to the next
fiscal year, but any unused vacation over ten (10) days shall
be forfeited.
3.4 BUSINESS EXPENSES. During the term of Executive's employment
under this Agreement and as for as long thereafter as required
pursuant to Section 4, the Company shall, in accordance with,
and to the extent of, its uniform policies in effect from time
to time, bear all ordinary and necessary business expenses
incurred by Executive in performing Executive's duties as an
executive officer of the Company, including, without
limitation, all travel and living expenses while away from
home on business in the service of the Company, home telephone
expenses incurred in service of the Company, social and civic
club membership and participation expenses and entertainment
expenses, provided that Executive accounts promptly for such
expenses to the Company in the manner reasonably prescribed
from time to time by the Company.
3.5 AUTOMOBILE. During the term of Executive's employment under
this Agreement, the Executive shall be required to have and
maintain a personal automobile for use in the performance of
his duties under this Agreement and a valid drivers license to
operate Company vehicles. During the term of Executive's
employment under this Agreement, the Company shall pay the
Executive an allowance at an initial rate of $750.00 per month
to compensate him for all expenses incurred by him in
complying with these requirements.
3.6 OFFICE AND FACILITIES. During the term of Executive's
employment under this Agreement, the Company shall furnish
Executive with office space, at least equivalent in size,
quality, furnishings and in other respects to the office space
provided as of the date of this Agreement, and part-time
secretarial service, together with such other reasonable
facilities and services as are suitable, necessary and
appropriate.
3.7 FUTURE GRANT OF OPTIONS. Conditioned on Executive's remaining
employed by the Company, the Company may grant to Executive
options to acquire shares of the Company's common stock.
3.8 DISCRETIONARY BONUSES. Executive shall be eligible to receive
bonuses from time to time as may be awarded to Executive by
the Board or a compensation committee appointed by the Board
in the Board or the Committee's sole discretion.
5
<PAGE>
3.9 TERM LIFE INSURANCE. During the term of this Agreement, the
Company shall pay the premiums to purchase and maintain term
life insurance on the life of the Executive in an amount equal
to four times the Executive's Base Salary as in effect from
time to time, the benefit to be payable to such Beneficiary as
Executive shall advise the Company or the insurer from time to
time.
3.10 NONASSIGNABILITY OF BENEFITS. Executive shall not transfer,
assign, encumber, or otherwise dispose of his right to receive
payments hereunder and, in the event of any attempted transfer
or assignment, the Company shall have no further liability to
Executive under this Agreement.
4. EARLY TERMINATION.
4.1 EARLY TERMINATION. Subject to the respective continuing
obligations of the parties pursuant to Section 5, this Article
4 sets forth the terms for early termination of Executive's
employment under this Agreement.
4.2 TERMINATION BY THE COMPANY FOR CAUSE. The Company may
terminate this Agreement for Cause. A termination of
employment shall be for "Cause" if the Executive (i) has been
convicted of a felony, or (ii) has engaged in an act or acts
of personal dishonesty intended to result in substantial
personal enrichment of the Executive at the expense of the
Company, or (iii) has intentionally engaged in other conduct
that is demonstrably and materially injurious to the Company,
monetarily or otherwise; PROVIDED, HOWEVER, that no
termination of the Executive's employment shall be for Cause
as set forth in clause (ii) or (iii) above until (A) there
shall have been delivered to the Executive a copy of a written
notice setting forth that the Executive has been charged with
the conduct set forth in clause (ii) or (iii) and specifying
the particulars thereof in detail; (B) the Executive shall
have been provided an opportunity to be heard by the Board
(with the assistance of the Executive's counsel if the
Executive so desires); and (C) the Board (without including
the Executive if he is a member of the Board) unanimously
determines to terminate Executive's employment.
No act nor failure to act on the Executive's part shall be
considered "intentional" unless he has acted or failed to act
with an absence of good faith and without a reasonable belief
that his action or failure to act was in the best interest of
the Company. Notwithstanding anything contained in this
Agreement to the contrary, no failure to perform by the
Executive after a Notice of Termination is given by the
Executive will constitute Cause for purposes of this
Agreement.
4.3 TERMINATION BY COMPANY WITHOUT CAUSE. The Company may
terminate Executive's employment under this Agreement or any
renewal thereof at any time, provided that the Company shall
pay Executive all compensation due to Executive under this
Agreement for the remaining term of this Agreement or any
renewal thereof, as the case may be.
4.4 TERMINATION BY EXECUTIVE FOR GOOD REASON. Executive may
terminate Executive's employment under this Agreement for Good
Reason pursuant to Sections 4.4.1 through 4.4.6 hereof only
following a Change in Control (regardless of whether an
Anticipatory Change, as hereinafter defined, has occurred) and
pursuant to Sections 4.4.7 through 4.4.9 hereof either before
or following a Change in Control. Termination by Executive for
"GOOD REASON" shall mean termination of employment based on
any one or more of the following:
4.4.1 Assignment to Executive by the Company of duties
either prior to a Change in Control at the request of
a third party who has taken steps reasonably
calculated to effect the Change in Control
("Anticipatory
6
<PAGE>
Change") or after a Change in Control which are
inconsistent with Executive's position, duties,
responsibilities, and status with the Company
immediately prior to a Change in Control of the
Company, or a change in Executive's titles or offices
as in effect immediately prior to an Anticipatory
Change or a Change in Control of the Company, or any
removal of Executive from, or any failure to reelect
or reappoint Executive to, any of such positions,
except in connection with the termination of his
employment for Disability or Cause or as a result of
Executive's death or by Executive other than for Good
Reason;
4.4.2 A reduction by the Company of Executive's Base Salary
as in effect on the date hereof or as the same may be
increased from time to time during the term of this
Agreement or the Company's failure to increase
Executive's Base Salary (within 12 months of
Executive's last increase in base salary) after a
Change in Control of the Company in an amount which
is at least 50%, on a percentage basis, of the
average percentage increase in base salary for all
Executive Officers of the Company effected during the
preceding 12 months;
4.4.3 Any failure by the Company after a Change in Control
to continue in effect, or to provide a comparable
substitute for, any benefit plan or arrangement
(including, without limitation, any profit sharing
plan, executive supplemental medical plan, group life
insurance plan, and medical, dental, accident, and
disability plans but excluding incentive plans or
arrangements, which are the subject of Section
4.4.4), in which Executive is participating at the
time of a Change in Control of the Company (or any
other plans providing Executive with substantially
similar benefits) (hereinafter referred to as
"BENEFIT PLANS"), or the taking of any action by the
Company that would adversely affect Executive's
participation in or materially reduce Executive's
benefits under any such Benefit Plan or deprive
Executive of any material fringe benefit enjoyed by
Executive at the time of a Change in Control of the
Company;
4.4.4 Any failure by the Company after a Change in Control
to continue in effect, or to provide a comparable
substitute for, any incentive plan or arrangement
(including, without limitation, any incentive
compensation plan, long-term incentive plan, bonus or
contingent bonus arrangements or credits, the right
to receive performance awards, or similar incentive
compensation benefits) in which Executive is
participating, or is eligible to participate, at the
time of a Change in Control of the Company (or any
other plans or arrangements providing him with
substantially similar benefits, which may include the
payment of cash in lieu of stock or stock options)
(hereinafter referred to as "INCENTIVE PLANS") or the
taking of any action by the Company which would
adversely affect Executive's participation in any
such Incentive Plan;
4.4.5 If at the time of a Change in Control of the Company
Executive is employed at the Company's principal
executive offices, a relocation of such principal
executive offices after a Change in Control to a
location more than fifty miles outside of the
Minneapolis-St. Paul Metropolitan Area or requiring
the Executive to be based anywhere other than the
Company's principal executive offices at the time of
a Change in Control, or, if Executive is not employed
at the Company's principal executive offices at the
time of a Change in Control, Executive's relocation
after a Change in Control to any place other than the
location at which the
7
<PAGE>
Executive principally performed Executive's duties
prior to the Change in Control, or requiring travel
by Executive on the Company's business after a Change
in Control to an extent substantially greater than
Executive's business travel obligations at the time
of the Change in Control;
4.4.6 Any failure by the Company after a Change in Control
to provide Executive with at least the number of paid
vacation days to which the Executive is entitled at
the time of a Change in Control of the Company;
4.4.7 Any material breach by the Company of any provision
of this Agreement;
4.4.8 Any failure by the Company to obtain the assumption
of this Agreement by any successor or assign of the
Company as required by Section 9.1.1 hereof; or
4.4.9 Any purported termination of Executive's employment
which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section
4.7 hereof.
4.5 TERMINATION IN THE EVENT OF DEATH OR DISABILITY. The term of
Executive's employment under this Agreement shall terminate in
the event of Executive's death or Disability, subject to the
provisions of Section 4.8 hereof.
4.6 TERMINATION BY MUTUAL AGREEMENT. The parties may terminate
Executive's employment under this Agreement at any time by
mutual written agreement.
4.7 NOTICE OF TERMINATION; DATE OF TERMINATION; OFFER OF CONTINUED
EMPLOYMENT. The provisions of this Section 4.7 shall apply in
connection with any early termination of Executive's
employment under this Agreement pursuant to this Section 4.
4.7.1 For purposes of this Agreement, a "NOTICE OF
TERMINATION" shall mean a notice which shall indicate
the specific termination provisions in this Agreement
relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide the
basis for such termination. Any purported termination
by the Company or by Executive pursuant to this
Section 4 (other than a termination by mutual
agreement pursuant to Section 4.6 or death) shall be
communicated by written Notice of Termination to the
other party hereto.
4.7.2 For purposes of this Agreement, "DATE OF TERMINATION"
shall mean: (a) if Executive's employment is
terminated due to death, the last day of the month
first following the month during which Executive's
death occurs; (b) if Executive's employment is to be
terminated for Disability, thirty (30) calendar days
after Notice of Termination is given; (c) if
Executive's employment is terminated by the Company
for Cause or by Executive for Good Reason, the date
specified in the Notice of Termination; (d) if
Executive's employment is terminated by mutual
agreement of the parties, the date specified in such
agreement; or (e) if Executive's employment is
terminated for any other reason, the date specified
in the Notice of Termination, which in no event shall
be a date earlier than thirty (30) calendar days
after the date on which a Notice of Termination is
given, unless an earlier date has been expressly
agreed to by Executive in writing either in advance
of, or after, receiving such Notice of Termination;
PROVIDED, HOWEVER, if within thirty (30) calendar
days after giving of a Notice of Termination the
recipient of the Notice of
8
<PAGE>
Termination notifies the other party that a dispute
exists concerning the termination, then, unless
otherwise determined by the arbitrator or the court
making the final determination, the Date of
Termination shall be the date on which the dispute is
finally determined, whether by mutual written
agreement of the parties, by final and binding
arbitration or by final judgment, order or decree of
a court of competent jurisdiction (the time for
appeal therefrom having expired or no appeal having
been perfected).
4.7.3 If this Agreement is terminated other than by reason
of (a) the expiration of the term hereof as described
at Section 2.4, (b) Executive's Disability or death,
(c) Executive's termination for Cause pursuant to
Section 4.2, or (d) by mutual agreement of the
parties pursuant to Section 4.6, Executive may, but
shall not be required to, not later than ten (10)
days after the Date of Termination, provide a written
offer of continued employment with the Company in
accordance with the terms of this Agreement which
terms shall, in the case of a termination by
Executive for Good Reason pursuant to Section 4.4,
include the Company taking any such steps as may be
necessary to eliminate in a manner reasonably
satisfactory to Executive any conditions which
created such Good Reason for such termination. Within
ten (10) days of its receipt of such offer, the
Company shall provide Executive with a written
acceptance or rejection of such offer. Failure of the
Company to so accept or reject such offer within such
period shall be deemed to be a rejection of such
offer. The parties hereby acknowledge that
Executive's failure to provide such offer to the
Company shall in no way impair, affect or constitute
a waiver of Executive's right to enforce the
Company's obligations under this Agreement and the
Company shall not assert such failure as a defense in
any action or proceeding by Executive to enforce the
Company's obligations under this Agreement.
4.8 COMPENSATION UPON TERMINATION, DEATH OR DURING DISABILITY.
4.8.1 If the Executive shall become disabled or
incapacitated to the extent that he is unable to
perform his duties hereunder, by reason of medically
determinable physical or mental impairment, as
determined by a doctor mutually acceptable to the
Company and the Executive and retained by the
Company, Executive shall nevertheless continue to
receive the compensation and benefits provided under
the terms of this Agreement as follows: 100% of such
compensation and benefits for a period of six months,
but not beyond the Date of Termination, and 65%
thereafter until the Date of Termination. Such
benefits noted herein shall be reduced by any
benefits otherwise provided to the Executive during
such period under the provisions of disability
insurance coverage in effect for the Company's
employees. Thereafter, Executive shall be eligible to
receive benefits provided by the Company under the
provisions of disability insurance coverage in effect
for the Company's employees. Upon returning to active
full-time employment, the Executive's full
compensation as set forth in this Agreement shall be
reinstated as of the date of commencement of such
activities. In the event that the Executive returns
to active employment on other than a full-time basis,
then his compensation (as set forth in Section 3 of
this Agreement) shall be reduced in proportion to the
time spent in said employment, or as shall otherwise
be agreed to by the parties.
9
<PAGE>
4.8.2 If Executive's employment under this Agreement is
terminated on account of Disability or death, the
Company shall, within ten (10) fiscal days following
the Date of Termination, pay any amounts due to
Executive under this Agreement through the Date of
Termination, including, without limitation, amounts
to which Executive is entitled under any Plan in
accordance with the terms of such Plan, and further
including, without limitation, a pro rata portion
(prorated through the Date of Termination) of any
Target Incentive Bonus or other annual or long-term
bonus or incentive payments (for performance periods
in effect at the Date of Termination) to which
Executive would have been entitled had Executive
remained continuously employed through the end of
such performance periods and continued to perform
Executive's duties in the same manner as performed
immediately prior to the Executive's death or
Disability.
4.8.3 If Executive's employment under this Agreement is
terminated by the Company for Cause or, except as
otherwise provided in Section 7.2.3, by Executive for
other than Good Reason, the Company shall pay
Executive only the Base Salary through the Date of
Termination and any amounts to which the Executive is
entitled under any Plan in accordance with the terms
of such Plan.
4.8.4 If Executive's employment under this Agreement is
terminated by the mutual agreement of the parties
under Section 4.6, the Company shall provide
Executive with the payments and benefits specified in
the agreement.
4.8.5 If the Company terminates Executive's employment
hereunder without Cause other than in the event of
death or Disability (it being understood that a
purported termination for Disability or for Cause
which is disputed and finally determined not to have
been proper termination for Cause or Disability shall
be a termination by the Company without Cause) or if
Executive terminates his employment hereunder for
Good Reason in accordance with Section 4.4 (except,
in each case, following a Change in Control or
pursuant to an Anticipatory Event, which shall be
governed by Section 7 hereof and not by this Section
4.8.5), the Company shall:
4.8.5.1 continue to pay Executive's Base Salary in
accordance with Section 3.1 at the annual
rate in effect hereunder immediately prior
to the Date of Termination in the same
manner as if Executive had remained
continuously employed for the unexpired term
of this Agreement;
4.8.5.2 cause Executive's continued participation in
all Plans in accordance with Section 3.2 of
this Agreement as if Executive remained
continuously employed with the Company for
the unexpired term of this Agreement for all
purposes, including, without limitation,
grants, awards, accruals and vesting
thereunder; provided that, if such continued
participation is not permissible under
applicable law, the Company shall provide
Executive with benefits substantially
similar to those to which Executive would
have been entitled under those Plans in
which Executive's continued participation is
not permissible, and
10
<PAGE>
4.8.5.3 reimburse the Executive for outplacement
expenses up to $10,000, which amount shall
be payable for services provided within the
first twelve months following the Date of
Termination upon submission to the Company
of appropriate documentation evidencing
Executive's payment for such services;
4.8.6 The payments determined pursuant to Section 4.8.5
shall be mitigated to the extent of Executive's
"earned income" within the meaning of Section
911(d)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code") during the remainder of the
period with respect to which such payments pursuant
to Section 4.8.5 are required to be paid, except if
the termination arises under Section 7, in which
event Section 7.2.5 shall govern.
5. RESTRICTIVE COVENANTS. Except as otherwise provided in this Agreement,
the Executive will not, during the period of his employment with the
Company, and for a period of one (1) year thereafter (except for
Section 5.1, with the time therein set forth), directly or indirectly,
for himself or on behalf of or in conjunction with any other person,
company, partnership, corporation or business of whatever nature:
5.1 CONFIDENTIAL INFORMATION. Reveal to any person or entity
outside of the Company, except as may be explicitly necessary
as part of the direct responsibilities of the Executive's
position with the Company, any Confidential Information.
Executive shall keep the Company's confidential documents
secure and avoid the inadvertent or intentional disclosure of
the Company's business matters inside and/or outside the
Company. Disclosure of Confidential Information within the
Company shall only be on a need-to-know basis, as is required
or necessary to carry out the Executive's duties as an
employee of the Company. Executive will use reasonable and
prudent care to safeguard and protect and prevent the
unauthorized use and disclosure of Confidential Information.
The obligations contained in this Section 5.1 will survive for
as long as the Company, in its sole judgment, considers the
information to be Confidential Information. The obligations
under this Section 5.1 will not apply to any Confidential
Information that is now or becomes generally available to the
public through no fault of Executive or to Executive's
disclosure of any Confidential Information required by law or
judicial or administrative process.
5.2 NON-COMPETITION. Directly or indirectly, own (except as a
shareholder of up to 5% of the outstanding stock in a publicly
traded corporation), manage, operate, participate in
ownership, participate in management, participate in operation
or control, or be employed by, or act as a consultant to, or
become an independent contractor with, or become an adviser
to, or be connected in any manner with, any individual or
other entity which operates a store or has an interest in a
business that meaningfully competes with the Company within an
area closer than 15 miles from any open and operating
Funcoland store or which publishes a video game magazine with
distribution in any city where Funcoland retail stores are
located, now or at the applicable time, or which sells the
Products via the internet. Notwithstanding the foregoing, it
shall not be considered that Executive is meaningfully
competing with business of the Company in the event that he is
employed by a company in which (i) the gross sales of such
company from the sale of Products either in retail stores or
via the internet and/or (ii) the revenues from a video game
magazine are less than 15% of the gross sales or revenues,
respectively, of such company (including any subsidiaries or
affiliated companies). However, in the event Executive would
be in violation of this provision, but is not working in or
directly with a division or department that is primarily
involved with Products or which publishes a video game
magazine, Executive shall not be in violation of this
provision.
11
<PAGE>
5.3 NON-ENTICEMENT. Directly or indirectly interfere with the
contractual or other relationships between the Company and any
other employees, independent contractors, consultants,
prospective employees, prospective consultants, prospective
independent contractors to the Company, to be either employed
by or retained by the Company, or induce the Company's other
employees to leave the employ of the Company.
5.4 NON-CUSTOMER INTERFERENCE. Call upon any person or entity
which is/was a customer or prospective customer or vendor of
the Company (including the Subsidiaries thereof) in direct
competition with the current Business of the Company or known
planned products or services of the Company, or its
Subsidiaries. As used herein, the term "customer" means any
entity to whom the Company, or its Subsidiaries, has provided
services within the twelve (12) month period prior to the date
of Executive's termination; the term "prospective customer"
means any entity that has been subject to documented sales and
marketing activity, other than mass mailings, by the Company,
or its Subsidiaries, within the twelve (12) month period prior
to the date of Executive's termination; and "vendor" means any
entity serving as a source for any products sold by the
Company or entity producing products or services for the
Company to enable it to provide products and services to the
Company's customers.
5.5 NON-MERGER INTERFERENCE. Call upon, for the purpose of
acquiring or performing services for such entity, any
prospective acquisition or merger candidate which was either
called upon by the Company, or its Subsidiaries, or for which
the Company, or its Subsidiaries, made an acquisition or
merger analysis during the six (6) month period prior to the
date of Executive's termination.
5.6 INTERPRETATION. It is agreed by the parties that the foregoing
covenants in Sections 5.1 through 5.5, inclusive, impose a
reasonable restraint on Executive in light of the Company's
Business and related activities on the date of the execution
of this Agreement.
5.7 REMEDIES. Executive agrees that any breach or threatened
breach of the covenants set forth in this Section 5 will cause
the Company irreparable harm for which there is no adequate
remedy at law, and, without limiting other rights and remedies
the Company may have at law or under and pursuant to this
Agreement, Executive consents to remedies pursuant to this
Section 5.7, including, but not limited to, the issuance of an
injunction in favor of the Company enjoining the breach of any
of the aforesaid covenants by any court of appropriate
jurisdiction. Such injunction shall provide the Company with
at least a one (1) year contractual protection agreed to by
the parties, and in the event the Executive violates the terms
of the injunction, Executive agrees that a court of
appropriate jurisdiction shall have the power to extend the
length or breadth of the injunction to provide the Company
with the full measure of protection intended by this
Agreement, including, but not limited to, the extension of
such injunction for a reasonable period of time in order to
eliminate any commercial advantage which may be derived from a
misappropriation of Confidential Information or a breach or
default of the covenants set forth in Sections 5.2 through
5.5, inclusive. If any or all of the aforesaid covenants are
held not to be enforceable because of the scope or duration of
such covenant, or if applicable, the area covered by such
covenants, the parties agree that a court of appropriate
jurisdiction shall make such determination, and the court
shall have the power to reduce the scope, duration, and area
of any covenant (or one or more of the foregoing) to the
extent which allows maximum scope, duration and area as
permitted by applicable law. The covenants in this Section 5
protect not only the Company but also any operations
controlled by the Company or controlling the Company, whether
a Parent Corporation, Subsidiary, brother/sister corporation
or affiliate. The Executive shall pay reasonable attorneys'
fees, costs and expenses that may be incurred by the Company
in enforcing one or
12
<PAGE>
more of the covenants set forth in this Section 5. Section 5
shall have independent legal significance and shall survive
termination of this Agreement.
6. INVENTIONS.
6.1 DISCLOSURE AND ASSIGNMENT OF INVENTIONS AND OTHER WORKS.
Executive shall promptly disclose to the Company in writing
all Inventions and Works of Authorship which are conceived,
made, discovered, written or created by Executive alone or
jointly with another person, group or entity, whether during
the normal hours of his employment at the Company or on
Executive's own time, during the term of this Agreement and
for one year after termination of this Agreement. Executive
shall assign all rights to all such Inventions and Works of
Authorship to the Company. Executive shall give the Company
all the assistance it reasonably requires in order for Company
to perfect, protect, and use its rights to Inventions and
Works of Authorship. Executive shall sign all such documents,
take all such actions and supply all such information that the
Company considers necessary or desirable in order to transfer
or record the transfer of Executive's entire right, title and
interest in such Inventions and Works of Authorship; and in
order to enable the Company to obtain exclusive patent,
copyright, or other legal protection for Inventions and Works
of Authorship. The Company shall bear any reasonable expenses
in this regard.
6.2 NOTICE: MINNESOTA LAW EXEMPTS FROM THIS AGREEMENT "AN
INVENTION FOR WHICH NO EQUIPMENT, SUPPLIES, FACILITY OR TRADE
SECRET INFORMATION OF THE COMPANY WAS USED AND WHICH WAS
DEVELOPED ENTIRELY ON THE EXECUTIVE'S OWN TIME, AND (1) WHICH
DOES NOT RELATE (a) TO THE BUSINESS OF THE COMPANY OR (b) TO
THE COMPANY'S ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR
DEVELOPMENT, OR (2) WHICH DOES NOT RESULT FROM ANY WORK
PERFORMED BY THE EXECUTIVE FOR THE COMPANY."
6.3 ADDITIONAL EXCLUSIONS. The Inventions and Works of Authorship
set forth in Schedule A (if no Schedule A is attached, there
is nothing to disclose) to this Agreement which Executive owns
or controls shall also be excluded from operation of Section
6.1 of this Agreement, and Executive represents that such
Inventions and Works of Authorship were conceived, made,
written, or created by him prior to employment with the
Company (although they may be useful to the Company), its
Subsidiaries or affiliates. Other than the Inventions and
Works of Authorship listed in Schedule A, Executive does not
own or control rights in any Inventions or Works of Authorship
and Executive shall not assert any such rights against the
Company.
7. CHANGE IN CONTROL.
7.1 DEFINITIONS. For the purposes of this Agreement, the following
words and phrases shall have the following meanings:
7.1.1 "CHANGE IN CONTROL" shall mean any of the following
events:
7.1.1.1 an acquisition of any voting securities of
the Company (the "VOTING SECURITIES") by any
"PERSON" (as the term person is used for
purposes of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934 (the
"EXCHANGE ACT")), immediately after which
such Person (other than the Executive or any
group that includes the Executive) has
"BENEFICIAL OWNERSHIP" (within the meaning
of Rule 13d-3 promulgated under the Exchange
Act) of 35% or more of the combined voting
power of the Company's then outstanding
Voting Securities; PROVIDED,
13
<PAGE>
HOWEVER, that in determining whether a
Change in Control has occurred, Voting
Securities that are acquired in a
"NON-CONTROL ACQUISITION" (as hereinafter
defined) shall not constitute an acquisition
which would cause a Change in Control. A
"NON-CONTROL ACQUISITION" shall be an
acquisition by
(A) an employee benefit plan (or a trust
forming a part thereof) maintained by
(1) the Company or (2) any corporation
or other person of which a majority of
the voting power or voting equity
securities or equity interest is
owned, directly or indirectly, by the
Company (for purposes of this
definition a "SUBSIDIARY"),
(B) the Company or any of its
Subsidiaries,
(C) any person in connection with a
"NON-CONTROL TRANSACTION" (as
hereinafter defined), or
(D) the Executive or any group that
includes the Executive;
7.1.1.2 the individuals who, as of the date hereof,
are members of the Board (the "INCUMBENT
BOARD") and other individuals who, as
provided below, are considered members of
the Incumbent Board, cease for any reason to
constitute a majority of the members of the
Board; PROVIDED, HOWEVER, that if the
election, or nomination for election by the
Company's common shareholders, of any new
director was approved by a vote of a
majority of the Incumbent Board, such new
director shall, for purposes of this
Agreement, be considered a member of the
Incumbent Board; PROVIDED FURTHER, HOWEVER,
that no individual shall be considered a
member of the Incumbent Board if such
individual initially assumed office as a
result of either an actual or threatened
"ELECTION CONTEST" (as described in Rule
14a-11 promulgated under the Exchange Act)
or other actual or threatened solicitation
of proxies or consents by or on behalf of a
person other than the Board (a "PROXY
CONTEST") including by reason of any
agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
7.1.1.3 approval by the shareholders of the Company
of:
(A) a merger, consolidation, statutory
share exchange, or reorganization
involving the Company, unless such
merger, consolidation, statutory share
exchange, or reorganization is a
"NON-CONTROL TRANSACTION." A
"NON-CONTROL TRANSACTION" shall mean a
merger, consolidation, statutory share
exchange, or reorganization of the
Company where:
14
<PAGE>
(1) the shareholders of the Company
immediately before such merger,
consolidation, statutory share
exchange, or reorganization, own
directly or indirectly
immediately following such
merger, consolidation, statutory
share exchange, or
reorganization more than 65% of
the combined voting power of the
outstanding voting securities of
the corporation resulting from
such merger, consolidation,
statutory share exchange, or
reorganization (the "SURVIVING
CORPORATION") in substantially
the same proportion as their
ownership of the Voting
Securities immediately before
such merger, consolidation,
statutory share exchange, or
reorganization,
(2) the individuals who were members
of the Incumbent Board
immediately prior to the
execution of the agreement
providing for such merger,
consolidation, statutory share
exchange, or reorganization
constitute a majority of the
members of the board of
directors of the Surviving
Corporation, or a corporation
beneficially directly or
indirectly owning a majority of
the voting securities of the
Surviving Corporation, and
(3) no Person other than
a) the Company,
b) any Subsidiary,
c) any employee benefit plan
(or any trust forming a
part thereof) maintained
by the Company, the
Surviving Corporation, or
any Subsidiary,
d) any person who immediately
prior to such merger,
consolidation, statutory
share exchange, or
reorganization had
Beneficial Ownership of
35% or more of the then
outstanding Voting
Securities, or
e) the Executive or any group
that includes the
Executive,
has Beneficial Ownership of 35%
or more of the combined voting
power of
15
<PAGE>
the Surviving Corporation's then
outstanding voting securities;
(B) a complete liquidation or dissolution
of the Company; or
(C) an agreement for the sale or other
disposition of all or substantially
all of the assets of the Company to
any Person (other than a transfer to a
Subsidiary), except for a Non-Control
Transaction) (provided that for
purposes of determining whether a
transaction is a Non-Control
Transaction, the disposition of assets
shall be deemed to constitute a merger
and the transferee of the assets shall
be deemed to be the Surviving
Corporation).
7.1.1.4 Notwithstanding the foregoing, a Change in
Control shall not be deemed to occur solely
because any Person (the "SUBJECT PERSON")
acquired beneficial ownership of more than
the permitted amount of the then outstanding
Voting Securities as a result of the
acquisition of Voting Securities by the
Company (other than an acquisition proposed
by or on behalf of, or pursuant to any
agreement or arrangement with, the Subject
Person) which, by reducing the number of
Voting Securities then outstanding,
increases the proportional number of shares
beneficially owned by the Subject Person;
PROVIDED, HOWEVER, that if a Change in
Control would occur (but for the operation
of this sentence) as a result of the
acquisition of Voting Securities by the
Company, and after such share acquisition by
the Company, the Subject Person becomes
beneficial owner of any additional Voting
Securities that increases the percentage of
the then outstanding Voting Securities
beneficially owned by the Subject Person to
35% or more, then, subject to any applicable
exceptions in Sections 7.1.1.1 or 7.1.1.3, a
Change in Control shall have occurred.
7.2 PAYMENTS AND BENEFITS UPON A CHANGE IN CONTROL. If Executive
is employed by the Company upon the occurrence of a Change in
Control, or if Executive's termination of employment
constitutes an Anticipatory Event, the following provisions
shall govern:
7.2.1 If an Anticipatory Event occurs or if, during the
first twenty-four months following the Change in
Control, the Company terminates the Executive's
employment other than for Cause or Disability or
death, or the Executive terminates his employment for
Good Reason, the Executive shall receive from the
Company in a lump sum, in cash, on the fifth (5th)
day following the Date of Termination (or, with
respect to an Anticipatory Event, the fifth (5th) day
following the Change in Control), all amounts earned
or accrued through the Date of Termination but not
paid as of the Date of Termination, including his
Base Salary, reimbursement for reasonable and
necessary expenses incurred by the Executive on
behalf of the Company prior to the Date of
Termination, vacation pay, and sick leave, a pro rata
portion (prorated through the Date of Termination) of
the
16
<PAGE>
Target Incentive Bonus in effect for the fiscal year
in which the Executive's employment is terminated
under this Section 7.2.1, and an amount equal to two
(2) times the Executive's Base Salary and Target
Incentive Bonus in effect at the Date of Termination.
7.2.2 If, during the first twenty-four months following the
Change in Control, the Executive terminates his
employment other than (i) for Good Reason or (ii)
under the conditions set forth in Section 7.2.3 or if
his employment is terminated for Cause or Disability
or on account of his death, the Company shall pay the
Executive all amounts earned or accrued through the
Date of Termination but not paid as of the Date of
Termination, including his Base Salary, reimbursement
for reasonable and necessary expenses incurred by the
Executive on behalf of the Company prior to the Date
of Termination, vacation pay, and sick leave. If the
Executive's employment is terminated by the Company
for Disability or by reason of the Executive's death,
the Company shall pay to the Executive or his
Beneficiaries the compensation provided in Sections
4.8.1 and 4.8.2 hereof. The Executive's entitlement
to any other compensation or benefits shall be
determined in accordance with the Company's employee
benefit plans and other applicable programs and
practices then in effect.
7.2.3 In the event that the Executive terminates his
employment (upon at least three months' notice) at
the end of the first fifteen (15) months of
employment after the Change in Control for other than
Good Reason, the Executive shall be entitled to a
severance benefit of one year's Base Salary and
Target Incentive Bonus, but shall waive any further
benefits hereunder except those provided in Section
7.2.2.
7.2.4 In the event of termination of Executive's employment
under Section 7.2.1, Executive shall be entitled to
continue to participate in the Company's group
medical, dental, life and disability plans and to
receive payment of an automobile allowance on the
same basis as Executive participated or received
immediately prior to the Notice of Termination (or
shall receive equivalent benefits) for a period of
two (2) years following the Date of Termination, or,
with respect to an Anticipatory Event, the date of
the Change in Control. Executive shall be responsible
for payment of premiums and expenses to the same
extent as prior to the Notice of Termination. In the
event that Executive obtains substantially equivalent
coverage or benefits from another source, the
Company's obligation under this Section 7.2.4 shall
terminate.
7.2.5 Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement
by seeking other employment or otherwise, and no such
payment shall be offset or reduced by the amount of
any compensation or benefits provided to the
Executive in any subsequent employment except as
provided in Section 7.2.4.
7.2.6 The severance pay and benefits provided for in
Sections 7.2.1 and 7.2.3 are in lieu of any other
severance pay to which the Executive may be entitled
under any other Company severance plan, program or
arrangement.
7.2.7 In the event the Executive's employment is terminated
without Cause or Executive for Good Reason terminates
his employment and Section 7.2.1 is applicable under
the circumstances of such termination,
17
<PAGE>
the restrictive covenants set forth in Section 5 of
this Agreement (except for Section 5.1) shall no
longer be effective.
7.3 EXCISE TAX PAYMENTS.
7.3.1 In the event that any payment or benefit (within the
meaning of Section 280G(b)(2) of the Code), paid or
payable to the Executive or for his benefit or
distributed or distributable pursuant to the terms of
this Agreement or otherwise in connection with, or
arising out of, his employment with the Company or a
Change in Control of the Company (a "PAYMENT" or
"PAYMENTS"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest
or penalties become payable by the Executive with
respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter
collectively referred to as the "EXCISE TAX"), then
the Executive will be entitled to receive an
additional payment (a "GROSS-UP PAYMENT") in an
amount such that after payment by the Executive of
all taxes (including any interest or penalties, other
than interest and penalties imposed by reason of the
Executive's failure to file timely a tax return or
pay taxes shown as due on his return, imposed with
respect to such taxes and the Excise Tax), including
any Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments,
PROVIDED, HOWEVER, that in no event shall the amount
of the Gross-Up Payment exceed an amount equal to
100% of the Executive's Base Salary and Target
Incentive Bonus in effect at the Date of Termination.
7.3.2 An initial determination as to whether a Gross-Up
Payment is required pursuant to this Agreement and
the amount of such Gross-Up Payment shall be made at
the Company's expense by an accounting firm selected
by the Company and reasonably acceptable to the
Executive which is designated as one of the five
largest accounting firms in the United States (the
"ACCOUNTING FIRM"). The Accounting Firm shall provide
its determination (the "DETERMINATION"), together
with detailed supporting calculations and
documentation, to the Company and the Executive
within five days of the Date of Termination, if
applicable, or such other time as requested by the
Company or by the Executive (provided the Executive
reasonably believes that any of the Payments may be
subject to the Excise Tax). If the Accounting Firm
determines that no Excise Tax is payable by the
Executive with respect to a Payment or Payments, it
shall furnish the Executive with an opinion
reasonably acceptable to the Executive that no Excise
Tax will be imposed with respect to any such Payment
or Payments. Within ten days of the delivery of the
Determination to the Executive, the Executive shall
have the right to dispute the Determination (the
"DISPUTE"). The Gross-Up Payment, if any, as
determined pursuant to this Section 7.3.2 shall be
paid by the Company to the Executive within five days
of the receipt of the Determination. The existence of
the Dispute shall not in any way affect the
Executive's right to receive the Gross-Up Payment in
accordance with the Determination. Upon the final
resolution of a Dispute, the Company shall promptly
pay to the Executive any additional amount required
by such resolution, or, if it is determined that the
Excise Tax is lower than originally determined, the
Executive shall repay to the Company the excess
amount of the Gross-Up Payment. If there is no
Dispute, the Determination shall be binding, final
and conclusive upon
18
<PAGE>
the Company and the Executive subject to the
application of Section 7.3.3 below.
7.3.3 Notwithstanding anything contained in this Agreement
to the contrary, in the event that, according to the
Determination, an Excise Tax will be imposed on any
Payment or Payments, the Company shall pay to the
applicable government taxing authorities as Excise
Tax withholding, the amount of the Excise Tax that
the Company has actually withheld from the Payment or
Payments.
7.4 FEES AND EXPENSES. The Company shall pay all legal fees and
related expenses (including the costs of experts, evidence and
counsel) incurred by the Executive as they become due as a
result of (a) the Executive's seeking to obtain or enforce any
right or benefit provided by this Agreement or by any other
plan or arrangement maintained by the Company under which the
Executive is or may be entitled to receive benefits; or (b)
the Executive's hearing before the Board as contemplated in
Section 4.2 of this Agreement; PROVIDED, HOWEVER, that the
circumstances set forth in Clauses (a) and (b) of this Section
7.4 occurred on or after a Change in Control or an
Anticipatory Event has occurred.
8. ARBITRATION. Except as may be otherwise provided in this Agreement, any
and all controversies or disputes, of whatever nature, between or among
the parties involving the meaning of words or provisions under this
Agreement, whether there has been a material breach or default hereof,
or whether the dispute or controversy is subject to arbitration, shall
be settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association by a sole arbitrator and
judgment upon any award rendered by the arbitrator shall be conclusive,
final, and binding, and may be entered in any court of appropriate
jurisdiction. With respect to such arbitration:
8.1 All questions as to the meaning of the above clause, shall be
resolved by the arbitrator and a decision thereon shall be
binding and not subject to judicial review.
8.2 Each party shall have the right to seek from a court of
appropriate jurisdiction equitable or provisional remedies
(such as temporary restraining orders, temporary injunctions,
and the like) before arbitration proceedings have been
commenced and an arbitrator has been selected, but once an
arbitrator has been selected and the arbitration proceedings
are continuing, thereafter the sole jurisdiction with respect
to equitable or provisional remedies shall be remanded to the
arbitrator.
8.3 Any arbitrator shall be a retired judge or an attorney who has
been licensed to practice for at least ten (10) years and is
currently licensed to practice in the state of Minnesota.
8.4 All arbitration proceedings shall be in the Association's
office in Minneapolis, Minnesota, or at such other location as
the parties may agree.
8.5 The arbitrator shall be selected by the parties within fifteen
(15) business days after a request for arbitration has been
made by one of the parties hereto. If the parties are unable
to agree among themselves, the parties shall ask for a panel
of arbitrators to be submitted by the American Arbitration
Association. If the parties are unable to select a sole
arbitrator from the panel supplied by the American Arbitration
Association within twenty (20) business days after such
submission, then the American Arbitration Association shall
select the sole arbitrator.
8.6 The arbitrator shall have the discretion to award attorneys'
fees and costs in favor of any party if, in the opinion of the
arbitrator, the dispute arose because one of the
19
<PAGE>
parties was not acting in good faith, or was in material
breach or default of any covenants, representations, terms
and/or conditions of this Agreement. If no such finding by the
arbitrator is made, each of the parties to the arbitration
shall bear the cost of their respective attorneys and their
own expenses, but share equally the cost of said arbitration
proceeding and the cost of the arbitrator. However, in the
event the arbitration proceeding involves a claim pursuant to
Section 5 or 7, any term or condition within Section 5 or 7
which is in conflict with any term or condition of this
Section 8 shall supersede and control over any provision in
this Section 8 to the contrary.
8.7 Any award of the arbitrator may be entered in any court of
appropriate jurisdiction pursuant to Minn. Stat. ss.572.08 et
seq., which statutes, relating to arbitration, are
incorporated herein by reference.
8.8 The arbitrator shall not have the authority to award exemplary
or punitive damages.
8.9 Any award of the arbitrator shall be based upon applicable
law, but findings of fact and conclusions of law shall not be
submitted as part of any award.
9. GENERAL PROVISIONS.
9.1 SUCCESSORS AND ASSIGNS.
9.1.1 This Agreement shall be binding upon and shall inure
to the benefit of the Company, its successors and
assigns and the Company shall require any successor
or assign to expressly assume and agree to perform
this Agreement in the same manner and to the same
extent that the Company would be required to perform
it if no such succession or assignment had taken
place. The term "COMPANY" as used herein shall
include such successors (including a Surviving
Corporation) and assigns. The terms "SUCCESSORS" or
"SUCCESSORS AND ASSIGNS" as used herein each shall
mean a corporation or other entity acquiring all or
substantially all the assets and business of the
Company (including this Agreement) whether by
operation of law or otherwise.
9.1.2 Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the
Executive, his beneficiaries or legal
representatives, except by will or the laws of
descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the
Executive's legal personal representative.
9.2 NO OFFSETS. In no event shall any amount payable to Executive
pursuant to this Agreement be reduced for purposes of
offsetting, either directly or indirectly, any indebtedness or
liability of Executive to the Company.
9.3 NOTICES. All notices, requests and demands given to or made
pursuant hereto shall, except as otherwise specified herein,
be in writing and be personally delivered or mailed postage
prepaid, registered or certified US mail to any party at its
address set forth on the last page of this Agreement. Either
party may, by notice hereunder, designate a changed address.
Any notice hereunder shall be deemed effectively given and
received: (1) if personally delivered, upon delivery; or (2)
if mailed, on the registered date or the date stamped on the
certified mail receipt.
9.4 WITHHOLDING. To the extent required by any applicable law,
including, without limitation, any federal, state or local
income tax or excise tax law or laws, the Federal
20
<PAGE>
Insurance Contributions Act, the Federal Unemployment Tax Act
or any comparable federal, state or local laws, the Company
retains the right to withhold such portion of any amount or
amounts payable to Executive under this Agreement as the
Company (on the written advice of outside counsel) deems
necessary.
9.5 CAPTIONS. The various headings or captions in this Agreement
are for convenience only and shall not affect the meaning or
interpretation of this Agreement.
9.6 GOVERNING LAW. The validity, interpretation, construction,
performance, enforcement and remedies of or relating to this
Agreement, and the rights and obligations of the parties
hereunder, shall be governed by the substantive laws of the
State of Minnesota (without regard to the conflict of laws,
rules or statutes of any jurisdiction), and any and every
legal proceeding arising out of or in connection with this
Agreement shall be brought in the appropriate courts of the
State of Minnesota, each of the parties hereby consenting to
the exclusive jurisdiction of said courts for this purpose.
9.7 CONSTRUCTION. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision
of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining
provisions of this Agreement.
9.8 WAIVERS. No failure on the part of either party to exercise,
and no delay in exercising, any right or remedy hereunder
shall operate as a waiver thereof; nor shall any single or
partial exercise of any right or remedy hereunder preclude any
other or further exercise thereof or the exercise of any other
right or remedy granted hereby or by any related document or
by law.
9.9 MODIFICATION. This Agreement may not be modified or amended
except by written instrument signed by the parties hereto.
9.10 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties hereto in
reference to all the matters herein agreed upon. This
Agreement replaces in full all prior employment agreements or
understandings of the parties hereto, except stock option
agreements, and any and all such prior agreements or
understandings, except stock option agreements, are hereby
rescinded by mutual agreement.
9.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original
but all of which together will constitute one and the same
instrument.
9.12 SURVIVAL. The parties expressly acknowledge and agree that the
provisions of this Agreement which by their express or implied
terms extend beyond the termination of Executive's employment
hereunder, shall continue in full force and effect
notwithstanding Executive's termination of employment
hereunder or the termination of this Agreement, respectively.
9.13 RIGHT TO COUNSEL. Employee acknowledges he is aware of his
right to obtain independent legal counsel of his own choosing
with respect to any matter or issue made or created by or
under this Agreement. Execution of this Agreement by the
Executive is an acknowledgement by the Executive that either
he has had the opportunity to review this Agreement to his own
satisfaction, has read and understood the terms and conditions
of this Agreement, has consulted with an attorney and has
21
<PAGE>
had the terms and conditions of this Agreement satisfactorily
explained to him, or has waived the right to seek his own
independent counsel, but nonetheless, acknowledges that he
understands the terms of this Agreement, and this Agreement is
executed and delivered freely and voluntarily by the Executive
without any force or coercion from the Company or any other
third party.
IN WITNESS WHEREOF, the parties hereto have caused this Executive
Employment Agreement to be duly executed and delivered as of the day and year
first above written.
COMPANY:
FUNCO, INC., a Minnesota corporation
By: /s/ David R. Pomije, CEO
-----------------------------------------
Name David R. Pomije
------------------------------------
Its Chairman of the Board and
Chief Executive Officer
EXECUTIVE:
/s/ Stanley A. Bodine
-----------------------------------------
Stanley A. Bodine
Address: 2735 Dean Parkway
Minneapolis, Minnesota 55416
22
EXHIBIT 10.5 EXECUTIVE EMPLOYMENT AGREEMENT WITH ROBERT M. HIBEN
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("AGREEMENT"), effective the 19th
day of May, 1999, is by and between Funco, Inc., a Minnesota corporation
("COMPANY"), and Robert M. Hiben ("EXECUTIVE"), a Minnesota resident.
RECITALS:
A. Executive is currently employed by the Company in the capacity
of Chief Financial Officer.
B. The Company is currently engaged in the sale of new and
previously played video games and video game equipment (the
"PRODUCTS") in its retail Funcoland stores, on its website, by
mail order, and to wholesale distributors, and the publication
of a magazine styled the "THE GAME INFORMER"(hereafter the
"COMPANY'S BUSINESS").
C. Executive has learned certain unique skills, talents,
contacts, judgment and knowledge, all to the benefit of the
Company, and has knowledge of the Company's Business,
strategies, and objectives.
D. The Board of Directors of the Company (the "BOARD") recognizes
that the possibility of a Change in Control (as hereinafter
defined) exists and that the threat or occurrence of a Change
in Control can result in significant distractions of the
Company's key management personnel because of the
uncertainties inherent in such a situation.
E. The Board has determined that it is essential and in the best
interest of the Company and its shareholders to retain the
services of the Executive in the event of the threat or
occurrence of a Change in Control and to ensure his continued
dedication and efforts in such event without undue concern for
his personal financial and employment security.
F. In order to induce the Executive to remain in the employ of
the Company, particularly in the event of a threat or
occurrence of a Change in Control, the Company desires to
enter into this Agreement with the Executive to provide the
Executive with certain payments and benefits during his
employment and following a Change in Control in the event his
employment is terminated as a result of, or in connection
with, a Change in Control.
In consideration of the foregoing Recitals, and the parties' mutual
covenants and undertakings contained in this Agreement, the Company and the
Executive agree as follows:
1. DEFINITIONS. Capitalized terms used in this Agreement shall have their
defined meaning throughout the Agreement. The following terms shall
have the meanings set forth below, unless the context clearly requires
otherwise.
1.1 "AGREEMENT" means this Executive Employment Agreement, as from
time to time amended.
1.2 "ANTICIPATORY EVENT" means the termination of Executive's
employment during the term of this Agreement or any renewal
thereof and prior to a Change in Control if it is reasonably
demonstrated by Executive that such termination (i) was at the
request of a third party who has taken steps reasonably
calculated to effect the Change in Control or (ii) otherwise
arose in connection with or anticipation of a Change in
Control.
<PAGE>
1.3 "BASE SALARY" means the total annual cash compensation payable
on a regular periodic basis, without regard to voluntary or
mandatory deferrals, as set forth at Section 3.1 of this
Agreement.
1.4 "BENEFICIARY" means the person or persons designated in
writing to the Company by Executive to receive any benefits
payable after Executive's death pursuant to this Agreement. In
the absence of such designation or in the event that all of
the persons so designated predecease Executive, Beneficiary
means the executor, administrator or personal representative
of Executive's estate.
1.5 "BOARD" means the Board of Directors of the Company.
1.6 "CAUSE" has the meaning set forth at Section 4.2 of this
Agreement.
1.7 "CHANGE IN CONTROL" has the meaning set forth at Section 7.1.1
of this Agreement.
1.8 "COMPANY" means all of the following, jointly and severally:
(a) Funco, Inc. and (b) any Successor.
1.9 "CONFIDENTIAL INFORMATION" means information that is
proprietary to the Company or proprietary to others and
entrusted to the Company, whether or not trade secrets, and
including, but not limited to, the Company's business plans,
advertising and/or marketing plans, financial performance,
financial projections, subscriber list, any other customer
lists, pricing information (prior to publication), personnel
matters, or any other matter considered or reasonably expected
to be considered confidential by the Company regarding the
Company's business and its employees.
1.10 "DATE OF TERMINATION" has the meaning set forth at Section
4.7.2 of this Agreement.
1.11 "DISABILITY" shall mean a physical or mental infirmity which
impairs the Executive's ability to substantially perform his
duties if it continues for a period of at least 180
consecutive days. Notwithstanding anything contained in this
Agreement to the contrary, until the Date of Termination
specified in a Notice of Termination relating to the
Executive's Disability, the Executive shall be entitled to
return to his position with the Company, in which event no
Disability of the Executive will be deemed to have occurred.
1.12 "EXECUTIVE" means Robert M. Hiben, and "Executive Officers"
means the Executive and Stanley A. Bodine, Jeffrey R.
Gatesmith and David R. Pomije (as long as they continue to be
officers of the Company), and any individuals who may
subsequently serve in the same, or substantially the same,
positions, whether or not holding the same title.
1.13 "GOOD REASON" has the meaning set forth at Section 4.4 of this
Agreement.
1.14 "INCENTIVE BONUS" means the annual cash bonus payable to the
Executive as set forth in Section 3.1 of this Agreement.
1.15 "NOTICE OF TERMINATION" has the meaning set forth at Section
4.7.1 of this Agreement.
1.16 "PARENT CORPORATION" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the
Company if at the time the corporation other than the Company
owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations
in the chain.
2
<PAGE>
1.17 "PLAN" means any bonus or incentive compensation agreement,
plan, program, policy or arrangement sponsored, maintained or
contributed to by the Company, to which the Company is a party
or under which employees of the Company are covered,
including, without limitation, any stock option, restricted
stock or any other equity-based compensation plan, annual or
long-term incentive (bonus) plan, and any employee benefit
plan, such as a thrift, pension, profit sharing, deferred
compensation, medical, dental, disability, accident, life
insurance, automobile allowance, perquisite, fringe benefit,
vacation, sick or parental leave, severance or relocation plan
or policy or any other agreement, plan, program, policy or
arrangement intended to benefit employees or executive
officers of the Company.
1.18 "SUBSIDIARY" means any corporation at least a majority of
whose securities having ordinary voting power for the election
of directors (other than securities having such power only by
reason of the occurrence of a contingency) is at the time
owned by the Parent Corporation, the Company and/or one or
more Subsidiaries.
1.19 "SUCCESSOR" has the meaning set forth at Section 9.1.1 of this
Agreement.
1.20 "INVENTIONS" means ideas, improvements and discoveries,
whether or not such are patentable or copyrightable, and
whether or not in writing or reduced to practice.
1.21 "WORKS OF AUTHORSHIP" means writings, drawings, software, and
any other works of authorship, whether or not such are
copyrightable.
2. EMPLOYMENT, DUTIES AND TERM.
2.1 EMPLOYMENT. Upon the terms and conditions set forth in this
Agreement, the Company hereby employs Executive, and Executive
accepts such employment, as Chief Financial Officer of the
Company. Except as expressly provided herein, termination of
this Agreement by either party or by mutual agreement of the
parties shall also terminate Executive's employment by the
Company.
2.2 DUTIES. During the term of this Agreement, and excluding any
periods of vacation, sick, disability or other leave to which
Executive is entitled, Executive agrees to devote reasonable
attention and time during normal business hours to the
business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to
Executive hereunder and under the Company's bylaws, as amended
from time to time, to use Executive's reasonable best efforts
to perform faithfully and efficiently such responsibilities.
During the term of this Agreement, it shall not be a violation
of this Agreement for Executive to serve on corporate, civic
or charitable boards or committees, deliver lectures, fulfill
speaking engagements or teach at educational institutions and
manage personal investments, so long as such activities do not
significantly interfere with the performance of Executive's
responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been
conducted by Executive prior to the date of this Agreement,
the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to
the date of this Agreement shall not thereafter be deemed to
interfere with the performance of Executive's responsibilities
to the Company. Executive shall reasonably comply with the
Company policies and procedures; PROVIDED, that to the extent
such policies and procedures are inconsistent with this
Agreement, the provisions of this Agreement shall control.
2.3 CERTAIN PROPRIETARY INFORMATION. If Executive possesses any
proprietary information of another person or entity as a
result of prior employment or relationship, Executive
3
<PAGE>
shall honor any legal obligation that Executive has with that
person or entity with respect to such proprietary information.
2.4 TERM. This Agreement shall be effective as of the date set
forth above, and shall be in effect until March 31, 2001,
provided that, commencing on March 31, 2001, and on each March
31 thereafter, the term of this Agreement shall be renewed
automatically for the subsequent one-year period unless either
the Executive or the Company gives written notice to the other
party of its intent not to so extend this Agreement at least
60 days prior to the end of the term of this Agreement or the
applicable renewal period, as the case may be, or, if a Change
in Control has occurred during the term of this Agreement or
any renewal thereof, this Agreement shall be in effect for a
period of two (2) years following the date of the Change in
Control; PROVIDED, HOWEVER, that notwithstanding any such
notice by the Company not to extend, this Agreement and the
benefits provided hereunder shall not be terminated if prior
to the expiration of this Agreement an Anticipatory Event
shall have occurred, in which event, this Agreement shall
terminate only after such Person publicly announces that it
has abandoned all efforts to effect a Change in Control or, if
a Change in Control shall occur, two years following the
Change in Control.
2.5 RETURN OF PROPRIETARY PROPERTY. Executive agrees that all
property in Executive's possession belonging to the Company,
including without limitation, all documents, reports, manuals,
memoranda, computer print-outs, customer lists, credit cards,
keys, identification, products, access cards, automobiles and
all other property relating in any way to the business of the
Company are the exclusive property of the Company, even if
Executive authored, created or assisted in authoring or
creating such property. Executive shall return to the Company
all such documents and property immediately upon termination
of employment or at such earlier time as the Company may
reasonably request.
3. COMPENSATION, BENEFITS AND EXPENSES.
3.1 BASE SALARY/INCENTIVE BONUS. Subject to Section 4.8, during
the term of Executive's employment under this Agreement and
for as long thereafter as required pursuant to Section 4, the
Company shall pay Executive a Base Salary at an annual rate
that is not less than One Hundred Forty-Four Thousand Dollars
($144,000.00) or such higher annual rate as may from time to
time be approved by the Board, such Base Salary to be paid in
substantially equal regular periodic payments in accordance
with the Company's regular payroll practices. If Executive's
Base Salary is increased from time to time during the term of
Executive's employment under this Agreement, the increased
amount shall become the Base Salary for the remainder of the
term and any extensions of Executive's term of employment
under this Agreement and for as long thereafter as required
pursuant to Section 4, subject to any subsequent increases. In
addition, the Executive shall be entitled to an annual
Incentive Bonus of 25% of Base Salary ("Target Incentive
Bonus"), contingent upon and adjusted by the Company's
achievement of goals defined by the Compensation Committee of
the Board.
3.2 OTHER COMPENSATION AND BENEFITS. During the term of
Executive's employment under this Agreement and for as long
thereafter as required pursuant to Section 4, the Company
shall continue in full force and effect all Plans in which
Executive is participating as of the date of this Agreement or
in which Executive becomes entitled to participate after the
date of this Agreement (or Plans providing Executive with at
least substantially similar benefits) other than as a result
of the normal expiration of any such Plan in accordance with
its terms as in effect as of the date of this Agreement or the
date as of which Executive first becomes entitled to
participate in such Plan, as the case may be, and shall not
take or omit to take any action that would adversely affect
Executive's continued participation in any such Plans on at
least as favorable a basis
4
<PAGE>
to Executive as is the case on the date of this Agreement or
the date as of which Executive first becomes entitled to
participate in such Plan, as the case may be, or which would
materially reduce Executive's benefits in the future under any
such Plans or deprive Executive of any material benefit
enjoyed by Executive as of the date of this Agreement or the
date as of which Executive first becomes entitled to
participate in such Plan, as the case may be. Executive shall
be entitled to participate in or receive benefits under any
Plan made available by the Company in the future to its
executives and key management employees, subject to and on a
basis consistent with the terms, conditions and overall
administration of such Plans. Nothing paid to Executive under
any Plan presently in effect or made available in the future
shall be deemed to be in lieu of the Base Salary, bonuses,
incentives or compensation of any other nature otherwise
payable to Executive.
3.3 VACATION. For the 2000 fiscal year and each subsequent fiscal
year that begins during the term of Executive's employment
under this Agreement and for each fiscal year thereafter as
required pursuant to Section 4 of this Agreement, Executive
shall be entitled to four weeks paid vacation. The time or
times at which such paid vacation is to be taken shall be
reasonably determined by Executive consistent with Executive's
duties and obligations under this Agreement. Any such vacation
with respect to a fiscal year that is unused as of the last
day of such fiscal year shall be carried forward to the next
fiscal year, but any unused vacation over ten (10) days shall
be forfeited.
3.4 BUSINESS EXPENSES. During the term of Executive's employment
under this Agreement and as for as long thereafter as required
pursuant to Section 4, the Company shall, in accordance with,
and to the extent of, its uniform policies in effect from time
to time, bear all ordinary and necessary business expenses
incurred by Executive in performing Executive's duties as an
executive officer of the Company, including, without
limitation, all travel and living expenses while away from
home on business in the service of the Company, home telephone
expenses incurred in service of the Company, social and civic
club membership and participation expenses and entertainment
expenses, provided that Executive accounts promptly for such
expenses to the Company in the manner reasonably prescribed
from time to time by the Company.
3.5 AUTOMOBILE. During the term of Executive's employment under
this Agreement, the Executive shall be required to have and
maintain a personal automobile for use in the performance of
his duties under this Agreement and a valid drivers license to
operate Company vehicles. During the term of Executive's
employment under this Agreement, the Company shall pay the
Executive an allowance at an initial rate of $750.00 per month
to compensate him for all expenses incurred by him in
complying with these requirements.
3.6 OFFICE AND FACILITIES. During the term of Executive's
employment under this Agreement, the Company shall furnish
Executive with office space, at least equivalent in size,
quality, furnishings and in other respects to the office space
provided as of the date of this Agreement, and part-time
secretarial service, together with such other reasonable
facilities and services as are suitable, necessary and
appropriate.
3.7 FUTURE GRANT OF OPTIONS. Conditioned on Executive's remaining
employed by the Company, the Company may grant to Executive
options to acquire shares of the Company's common stock.
3.8 DISCRETIONARY BONUSES. Executive shall be eligible to receive
bonuses from time to time as may be awarded to Executive by
the Board or a compensation committee appointed by the Board
in the Board or the Committee's sole discretion.
5
<PAGE>
3.9 TERM LIFE INSURANCE. During the term of this Agreement, the
Company shall pay the premiums to purchase and maintain term
life insurance on the life of the Executive in an amount equal
to four times the Executive's Base Salary as in effect from
time to time, the benefit to be payable to such Beneficiary as
Executive shall advise the Company or the insurer from time to
time.
3.10 NONASSIGNABILITY OF BENEFITS. Executive shall not transfer,
assign, encumber, or otherwise dispose of his right to receive
payments hereunder and, in the event of any attempted transfer
or assignment, the Company shall have no further liability to
Executive under this Agreement.
4. EARLY TERMINATION.
4.1 EARLY TERMINATION. Subject to the respective continuing
obligations of the parties pursuant to Section 5, this Article
4 sets forth the terms for early termination of Executive's
employment under this Agreement.
4.2 TERMINATION BY THE COMPANY FOR CAUSE. The Company may
terminate this Agreement for Cause. A termination of
employment shall be for "Cause" if the Executive (i) has been
convicted of a felony, or (ii) has engaged in an act or acts
of personal dishonesty intended to result in substantial
personal enrichment of the Executive at the expense of the
Company, or (iii) has intentionally engaged in other conduct
that is demonstrably and materially injurious to the Company,
monetarily or otherwise; PROVIDED, HOWEVER, that no
termination of the Executive's employment shall be for Cause
as set forth in clause (ii) or (iii) above until (A) there
shall have been delivered to the Executive a copy of a written
notice setting forth that the Executive has been charged with
the conduct set forth in clause (ii) or (iii) and specifying
the particulars thereof in detail; (B) the Executive shall
have been provided an opportunity to be heard by the Board
(with the assistance of the Executive's counsel if the
Executive so desires); and (C) the Board (without including
the Executive if he is a member of the Board) unanimously
determines to terminate Executive's employment.
No act nor failure to act on the Executive's part shall be
considered "intentional" unless he has acted or failed to act
with an absence of good faith and without a reasonable belief
that his action or failure to act was in the best interest of
the Company. Notwithstanding anything contained in this
Agreement to the contrary, no failure to perform by the
Executive after a Notice of Termination is given by the
Executive will constitute Cause for purposes of this
Agreement.
4.3 TERMINATION BY COMPANY WITHOUT CAUSE. The Company may
terminate Executive's employment under this Agreement or any
renewal thereof at any time, provided that the Company shall
pay Executive all compensation due to Executive under this
Agreement for the remaining term of this Agreement or any
renewal thereof, as the case may be.
4.4 TERMINATION BY EXECUTIVE FOR GOOD REASON. Executive may
terminate Executive's employment under this Agreement for Good
Reason pursuant to Sections 4.4.1 through 4.4.6 hereof only
following a Change in Control (regardless of whether an
Anticipatory Change, as hereinafter defined, has occurred) and
pursuant to Sections 4.4.7 through 4.4.9 hereof either before
or following a Change in Control. Termination by Executive for
"GOOD REASON" shall mean termination of employment based on
any one or more of the following:
4.4.1 Assignment to Executive by the Company of duties
either prior to a Change in Control at the request of
a third party who has taken steps reasonably
calculated to effect the Change in Control
("Anticipatory
6
<PAGE>
Change") or after a Change in Control which are
inconsistent with Executive's position, duties,
responsibilities, and status with the Company
immediately prior to a Change in Control of the
Company, or a change in Executive's titles or offices
as in effect immediately prior to an Anticipatory
Change or a Change in Control of the Company, or any
removal of Executive from, or any failure to reelect
or reappoint Executive to, any of such positions,
except in connection with the termination of his
employment for Disability or Cause or as a result of
Executive's death or by Executive other than for Good
Reason;
4.4.2 A reduction by the Company of Executive's Base Salary
as in effect on the date hereof or as the same may be
increased from time to time during the term of this
Agreement or the Company's failure to increase
Executive's Base Salary (within 12 months of
Executive's last increase in base salary) after a
Change in Control of the Company in an amount which
is at least 50%, on a percentage basis, of the
average percentage increase in base salary for all
Executive Officers of the Company effected during the
preceding 12 months;
4.4.3 Any failure by the Company after a Change in Control
to continue in effect, or to provide a comparable
substitute for, any benefit plan or arrangement
(including, without limitation, any profit sharing
plan, executive supplemental medical plan, group life
insurance plan, and medical, dental, accident, and
disability plans but excluding incentive plans or
arrangements, which are the subject of Section
4.4.4), in which Executive is participating at the
time of a Change in Control of the Company (or any
other plans providing Executive with substantially
similar benefits) (hereinafter referred to as
"BENEFIT PLANS"), or the taking of any action by the
Company that would adversely affect Executive's
participation in or materially reduce Executive's
benefits under any such Benefit Plan or deprive
Executive of any material fringe benefit enjoyed by
Executive at the time of a Change in Control of the
Company;
4.4.4 Any failure by the Company after a Change in Control
to continue in effect, or to provide a comparable
substitute for, any incentive plan or arrangement
(including, without limitation, any incentive
compensation plan, long-term incentive plan, bonus or
contingent bonus arrangements or credits, the right
to receive performance awards, or similar incentive
compensation benefits) in which Executive is
participating, or is eligible to participate, at the
time of a Change in Control of the Company (or any
other plans or arrangements providing him with
substantially similar benefits, which may include the
payment of cash in lieu of stock or stock options)
(hereinafter referred to as "INCENTIVE PLANS") or the
taking of any action by the Company which would
adversely affect Executive's participation in any
such Incentive Plan;
4.4.5 If at the time of a Change in Control of the Company
Executive is employed at the Company's principal
executive offices, a relocation of such principal
executive offices after a Change in Control to a
location more than fifty miles outside of the
Minneapolis-St. Paul Metropolitan Area or requiring
the Executive to be based anywhere other than the
Company's principal executive offices at the time of
a Change in Control, or, if Executive is not employed
at the Company's principal executive offices at the
time of a Change in Control, Executive's relocation
after a Change in Control to any place other than the
location at which the
7
<PAGE>
Executive principally performed Executive's duties
prior to the Change in Control, or requiring travel
by Executive on the Company's business after a Change
in Control to an extent substantially greater than
Executive's business travel obligations at the time
of the Change in Control;
4.4.6 Any failure by the Company after a Change in Control
to provide Executive with at least the number of paid
vacation days to which the Executive is entitled at
the time of a Change in Control of the Company;
4.4.7 Any material breach by the Company of any provision
of this Agreement;
4.4.8 Any failure by the Company to obtain the assumption
of this Agreement by any successor or assign of the
Company as required by Section 9.1.1 hereof; or
4.4.9 Any purported termination of Executive's employment
which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section
4.7 hereof.
4.5 TERMINATION IN THE EVENT OF DEATH OR DISABILITY. The term of
Executive's employment under this Agreement shall terminate in
the event of Executive's death or Disability, subject to the
provisions of Section 4.8 hereof.
4.6 TERMINATION BY MUTUAL AGREEMENT. The parties may terminate
Executive's employment under this Agreement at any time by
mutual written agreement.
4.7 NOTICE OF TERMINATION; DATE OF TERMINATION; OFFER OF CONTINUED
EMPLOYMENT. The provisions of this Section 4.7 shall apply in
connection with any early termination of Executive's
employment under this Agreement pursuant to this Section 4.
4.7.1 For purposes of this Agreement, a "NOTICE OF
TERMINATION" shall mean a notice which shall indicate
the specific termination provisions in this Agreement
relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide the
basis for such termination. Any purported termination
by the Company or by Executive pursuant to this
Section 4 (other than a termination by mutual
agreement pursuant to Section 4.6 or death) shall be
communicated by written Notice of Termination to the
other party hereto.
4.7.2 For purposes of this Agreement, "DATE OF TERMINATION"
shall mean: (a) if Executive's employment is
terminated due to death, the last day of the month
first following the month during which Executive's
death occurs; (b) if Executive's employment is to be
terminated for Disability, thirty (30) calendar days
after Notice of Termination is given; (c) if
Executive's employment is terminated by the Company
for Cause or by Executive for Good Reason, the date
specified in the Notice of Termination; (d) if
Executive's employment is terminated by mutual
agreement of the parties, the date specified in such
agreement; or (e) if Executive's employment is
terminated for any other reason, the date specified
in the Notice of Termination, which in no event shall
be a date earlier than thirty (30) calendar days
after the date on which a Notice of Termination is
given, unless an earlier date has been expressly
agreed to by Executive in writing either in advance
of, or after, receiving such Notice of Termination;
PROVIDED, HOWEVER, if within thirty (30) calendar
days after giving of a Notice of Termination the
recipient of the Notice of
8
<PAGE>
Termination notifies the other party that a dispute
exists concerning the termination, then, unless
otherwise determined by the arbitrator or the court
making the final determination, the Date of
Termination shall be the date on which the dispute is
finally determined, whether by mutual written
agreement of the parties, by final and binding
arbitration or by final judgment, order or decree of
a court of competent jurisdiction (the time for
appeal therefrom having expired or no appeal having
been perfected).
4.7.3 If this Agreement is terminated other than by reason
of (a) the expiration of the term hereof as described
at Section 2.4, (b) Executive's Disability or death,
(c) Executive's termination for Cause pursuant to
Section 4.2, or (d) by mutual agreement of the
parties pursuant to Section 4.6, Executive may, but
shall not be required to, not later than ten (10)
days after the Date of Termination, provide a written
offer of continued employment with the Company in
accordance with the terms of this Agreement which
terms shall, in the case of a termination by
Executive for Good Reason pursuant to Section 4.4,
include the Company taking any such steps as may be
necessary to eliminate in a manner reasonably
satisfactory to Executive any conditions which
created such Good Reason for such termination. Within
ten (10) days of its receipt of such offer, the
Company shall provide Executive with a written
acceptance or rejection of such offer. Failure of the
Company to so accept or reject such offer within such
period shall be deemed to be a rejection of such
offer. The parties hereby acknowledge that
Executive's failure to provide such offer to the
Company shall in no way impair, affect or constitute
a waiver of Executive's right to enforce the
Company's obligations under this Agreement and the
Company shall not assert such failure as a defense in
any action or proceeding by Executive to enforce the
Company's obligations under this Agreement.
4.8 COMPENSATION UPON TERMINATION, DEATH OR DURING DISABILITY.
4.8.1 If the Executive shall become disabled or
incapacitated to the extent that he is unable to
perform his duties hereunder, by reason of medically
determinable physical or mental impairment, as
determined by a doctor mutually acceptable to the
Company and the Executive and retained by the
Company, Executive shall nevertheless continue to
receive the compensation and benefits provided under
the terms of this Agreement as follows: 100% of such
compensation and benefits for a period of six months,
but not beyond the Date of Termination, and 65%
thereafter until the Date of Termination. Such
benefits noted herein shall be reduced by any
benefits otherwise provided to the Executive during
such period under the provisions of disability
insurance coverage in effect for the Company's
employees. Thereafter, Executive shall be eligible to
receive benefits provided by the Company under the
provisions of disability insurance coverage in effect
for the Company's employees. Upon returning to active
full-time employment, the Executive's full
compensation as set forth in this Agreement shall be
reinstated as of the date of commencement of such
activities. In the event that the Executive returns
to active employment on other than a full-time basis,
then his compensation (as set forth in Section 3 of
this Agreement) shall be reduced in proportion to the
time spent in said employment, or as shall otherwise
be agreed to by the parties.
9
<PAGE>
4.8.2 If Executive's employment under this Agreement is
terminated on account of Disability or death, the
Company shall, within ten (10) fiscal days following
the Date of Termination, pay any amounts due to
Executive under this Agreement through the Date of
Termination, including, without limitation, amounts
to which Executive is entitled under any Plan in
accordance with the terms of such Plan, and further
including, without limitation, a pro rata portion
(prorated through the Date of Termination) of any
Target Incentive Bonus or other annual or long-term
bonus or incentive payments (for performance periods
in effect at the Date of Termination) to which
Executive would have been entitled had Executive
remained continuously employed through the end of
such performance periods and continued to perform
Executive's duties in the same manner as performed
immediately prior to the Executive's death or
Disability.
4.8.3 If Executive's employment under this Agreement is
terminated by the Company for Cause or, except as
otherwise provided in Section 7.2.3, by Executive for
other than Good Reason, the Company shall pay
Executive only the Base Salary through the Date of
Termination and any amounts to which the Executive is
entitled under any Plan in accordance with the terms
of such Plan.
4.8.4 If Executive's employment under this Agreement is
terminated by the mutual agreement of the parties
under Section 4.6, the Company shall provide
Executive with the payments and benefits specified in
the agreement.
4.8.5 If the Company terminates Executive's employment
hereunder without Cause other than in the event of
death or Disability (it being understood that a
purported termination for Disability or for Cause
which is disputed and finally determined not to have
been proper termination for Cause or Disability shall
be a termination by the Company without Cause) or if
Executive terminates his employment hereunder for
Good Reason in accordance with Section 4.4 (except,
in each case, following a Change in Control or
pursuant to an Anticipatory Event, which shall be
governed by Section 7 hereof and not by this Section
4.8.5), the Company shall:
4.8.5.1 continue to pay Executive's Base Salary in
accordance with Section 3.1 at the annual
rate in effect hereunder immediately prior
to the Date of Termination in the same
manner as if Executive had remained
continuously employed for the unexpired term
of this Agreement;
4.8.5.2 cause Executive's continued participation in
all Plans in accordance with Section 3.2 of
this Agreement as if Executive remained
continuously employed with the Company for
the unexpired term of this Agreement for all
purposes, including, without limitation,
grants, awards, accruals and vesting
thereunder; provided that, if such continued
participation is not permissible under
applicable law, the Company shall provide
Executive with benefits substantially
similar to those to which Executive would
have been entitled under those Plans in
which Executive's continued participation is
not permissible, and
10
<PAGE>
4.8.5.3 reimburse the Executive for outplacement
expenses up to $10,000, which amount shall
be payable for services provided within the
first twelve months following the Date of
Termination upon submission to the Company
of appropriate documentation evidencing
Executive's payment for such services;
4.8.6 The payments determined pursuant to Section 4.8.5
shall be mitigated to the extent of Executive's
"earned income" within the meaning of Section
911(d)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code") during the remainder of the
period with respect to which such payments pursuant
to Section 4.8.5 are required to be paid, except if
the termination arises under Section 7, in which
event Section 7.2.5 shall govern.
5. RESTRICTIVE COVENANTS. Except as otherwise provided in this Agreement,
the Executive will not, during the period of his employment with the
Company, and for a period of one (1) year thereafter (except for
Section 5.1, with the time therein set forth), directly or indirectly,
for himself or on behalf of or in conjunction with any other person,
company, partnership, corporation or business of whatever nature:
5.1 CONFIDENTIAL INFORMATION. Reveal to any person or entity
outside of the Company, except as may be explicitly necessary
as part of the direct responsibilities of the Executive's
position with the Company, any Confidential Information.
Executive shall keep the Company's confidential documents
secure and avoid the inadvertent or intentional disclosure of
the Company's business matters inside and/or outside the
Company. Disclosure of Confidential Information within the
Company shall only be on a need-to-know basis, as is required
or necessary to carry out the Executive's duties as an
employee of the Company. Executive will use reasonable and
prudent care to safeguard and protect and prevent the
unauthorized use and disclosure of Confidential Information.
The obligations contained in this Section 5.1 will survive for
as long as the Company, in its sole judgment, considers the
information to be Confidential Information. The obligations
under this Section 5.1 will not apply to any Confidential
Information that is now or becomes generally available to the
public through no fault of Executive or to Executive's
disclosure of any Confidential Information required by law or
judicial or administrative process.
5.2 NON-COMPETITION. Directly or indirectly, own (except as a
shareholder of up to 5% of the outstanding stock in a publicly
traded corporation), manage, operate, participate in
ownership, participate in management, participate in operation
or control, or be employed by, or act as a consultant to, or
become an independent contractor with, or become an adviser
to, or be connected in any manner with, any individual or
other entity which operates a store or has an interest in a
business that meaningfully competes with the Company within an
area closer than 15 miles from any open and operating
Funcoland store or which publishes a video game magazine with
distribution in any city where Funcoland retail stores are
located, now or at the applicable time, or which sells the
Products via the internet. Notwithstanding the foregoing, it
shall not be considered that Executive is meaningfully
competing with business of the Company in the event that he is
employed by a company in which (i) the gross sales of such
company from the sale of Products either in retail stores or
via the internet and/or (ii) the revenues from a video game
magazine are less than 15% of the gross sales or revenues,
respectively, of such company (including any subsidiaries or
affiliated companies). However, in the event Executive would
be in violation of this provision, but is not working in or
directly with a division or department that is primarily
involved with Products or which publishes a video game
magazine, Executive shall not be in violation of this
provision.
11
<PAGE>
5.3 NON-ENTICEMENT. Directly or indirectly interfere with the
contractual or other relationships between the Company and any
other employees, independent contractors, consultants,
prospective employees, prospective consultants, prospective
independent contractors to the Company, to be either employed
by or retained by the Company, or induce the Company's other
employees to leave the employ of the Company.
5.4 NON-CUSTOMER INTERFERENCE. Call upon any person or entity
which is/was a customer or prospective customer or vendor of
the Company (including the Subsidiaries thereof) in direct
competition with the current Business of the Company or known
planned products or services of the Company, or its
Subsidiaries. As used herein, the term "customer" means any
entity to whom the Company, or its Subsidiaries, has provided
services within the twelve (12) month period prior to the date
of Executive's termination; the term "prospective customer"
means any entity that has been subject to documented sales and
marketing activity, other than mass mailings, by the Company,
or its Subsidiaries, within the twelve (12) month period prior
to the date of Executive's termination; and "vendor" means any
entity serving as a source for any products sold by the
Company or entity producing products or services for the
Company to enable it to provide products and services to the
Company's customers.
5.5 NON-MERGER INTERFERENCE. Call upon, for the purpose of
acquiring or performing services for such entity, any
prospective acquisition or merger candidate which was either
called upon by the Company, or its Subsidiaries, or for which
the Company, or its Subsidiaries, made an acquisition or
merger analysis during the six (6) month period prior to the
date of Executive's termination.
5.6 INTERPRETATION. It is agreed by the parties that the foregoing
covenants in Sections 5.1 through 5.5, inclusive, impose a
reasonable restraint on Executive in light of the Company's
Business and related activities on the date of the execution
of this Agreement.
5.7 REMEDIES. Executive agrees that any breach or threatened
breach of the covenants set forth in this Section 5 will cause
the Company irreparable harm for which there is no adequate
remedy at law, and, without limiting other rights and remedies
the Company may have at law or under and pursuant to this
Agreement, Executive consents to remedies pursuant to this
Section 5.7, including, but not limited to, the issuance of an
injunction in favor of the Company enjoining the breach of any
of the aforesaid covenants by any court of appropriate
jurisdiction. Such injunction shall provide the Company with
at least a one (1) year contractual protection agreed to by
the parties, and in the event the Executive violates the terms
of the injunction, Executive agrees that a court of
appropriate jurisdiction shall have the power to extend the
length or breadth of the injunction to provide the Company
with the full measure of protection intended by this
Agreement, including, but not limited to, the extension of
such injunction for a reasonable period of time in order to
eliminate any commercial advantage which may be derived from a
misappropriation of Confidential Information or a breach or
default of the covenants set forth in Sections 5.2 through
5.5, inclusive. If any or all of the aforesaid covenants are
held not to be enforceable because of the scope or duration of
such covenant, or if applicable, the area covered by such
covenants, the parties agree that a court of appropriate
jurisdiction shall make such determination, and the court
shall have the power to reduce the scope, duration, and area
of any covenant (or one or more of the foregoing) to the
extent which allows maximum scope, duration and area as
permitted by applicable law. The covenants in this Section 5
protect not only the Company but also any operations
controlled by the Company or controlling the Company, whether
a Parent Corporation, Subsidiary, brother/sister corporation
or affiliate. The Executive shall pay reasonable attorneys'
fees, costs and expenses that may be incurred by the Company
in enforcing one or
12
<PAGE>
more of the covenants set forth in this Section 5. Section 5
shall have independent legal significance and shall survive
termination of this Agreement.
6. INVENTIONS.
6.1 DISCLOSURE AND ASSIGNMENT OF INVENTIONS AND OTHER WORKS.
Executive shall promptly disclose to the Company in writing
all Inventions and Works of Authorship which are conceived,
made, discovered, written or created by Executive alone or
jointly with another person, group or entity, whether during
the normal hours of his employment at the Company or on
Executive's own time, during the term of this Agreement and
for one year after termination of this Agreement. Executive
shall assign all rights to all such Inventions and Works of
Authorship to the Company. Executive shall give the Company
all the assistance it reasonably requires in order for Company
to perfect, protect, and use its rights to Inventions and
Works of Authorship. Executive shall sign all such documents,
take all such actions and supply all such information that the
Company considers necessary or desirable in order to transfer
or record the transfer of Executive's entire right, title and
interest in such Inventions and Works of Authorship; and in
order to enable the Company to obtain exclusive patent,
copyright, or other legal protection for Inventions and Works
of Authorship. The Company shall bear any reasonable expenses
in this regard.
6.2 NOTICE: MINNESOTA LAW EXEMPTS FROM THIS AGREEMENT "AN
INVENTION FOR WHICH NO EQUIPMENT, SUPPLIES, FACILITY OR TRADE
SECRET INFORMATION OF THE COMPANY WAS USED AND WHICH WAS
DEVELOPED ENTIRELY ON THE EXECUTIVE'S OWN TIME, AND (1) WHICH
DOES NOT RELATE (a) TO THE BUSINESS OF THE COMPANY OR (b) TO
THE COMPANY'S ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR
DEVELOPMENT, OR (2) WHICH DOES NOT RESULT FROM ANY WORK
PERFORMED BY THE EXECUTIVE FOR THE COMPANY."
6.3 ADDITIONAL EXCLUSIONS. The Inventions and Works of Authorship
set forth in Schedule A (if no Schedule A is attached, there
is nothing to disclose) to this Agreement which Executive owns
or controls shall also be excluded from operation of Section
6.1 of this Agreement, and Executive represents that such
Inventions and Works of Authorship were conceived, made,
written, or created by him prior to employment with the
Company (although they may be useful to the Company), its
Subsidiaries or affiliates. Other than the Inventions and
Works of Authorship listed in Schedule A, Executive does not
own or control rights in any Inventions or Works of Authorship
and Executive shall not assert any such rights against the
Company.
7. CHANGE IN CONTROL.
7.1 DEFINITIONS. For the purposes of this Agreement, the following
words and phrases shall have the following meanings:
7.1.1 "CHANGE IN CONTROL" shall mean any of the following
events:
7.1.1.1 an acquisition of any voting securities of
the Company (the "VOTING SECURITIES") by any
"PERSON" (as the term person is used for
purposes of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934 (the
"EXCHANGE ACT")), immediately after which
such Person (other than the Executive or any
group that includes the Executive) has
"BENEFICIAL OWNERSHIP" (within the meaning
of Rule 13d-3 promulgated under the Exchange
Act) of 35% or more of the combined voting
power of the Company's then outstanding
Voting Securities; PROVIDED,
13
<PAGE>
HOWEVER, that in determining whether a
Change in Control has occurred, Voting
Securities that are acquired in a
"NON-CONTROL ACQUISITION" (as hereinafter
defined) shall not constitute an acquisition
which would cause a Change in Control. A
"NON-CONTROL ACQUISITION" shall be an
acquisition by
(A) an employee benefit plan (or a trust
forming a part thereof) maintained by
(1) the Company or (2) any corporation
or other person of which a majority of
the voting power or voting equity
securities or equity interest is
owned, directly or indirectly, by the
Company (for purposes of this
definition a "SUBSIDIARY"),
(B) the Company or any of its
Subsidiaries,
(C) any person in connection with a
"NON-CONTROL TRANSACTION" (as
hereinafter defined), or
(D) the Executive or any group that
includes the Executive;
7.1.1.2 the individuals who, as of the date hereof,
are members of the Board (the "INCUMBENT
BOARD") and other individuals who, as
provided below, are considered members of
the Incumbent Board, cease for any reason to
constitute a majority of the members of the
Board; PROVIDED, HOWEVER, that if the
election, or nomination for election by the
Company's common shareholders, of any new
director was approved by a vote of a
majority of the Incumbent Board, such new
director shall, for purposes of this
Agreement, be considered a member of the
Incumbent Board; PROVIDED FURTHER, HOWEVER,
that no individual shall be considered a
member of the Incumbent Board if such
individual initially assumed office as a
result of either an actual or threatened
"ELECTION CONTEST" (as described in Rule
14a-11 promulgated under the Exchange Act)
or other actual or threatened solicitation
of proxies or consents by or on behalf of a
person other than the Board (a "PROXY
CONTEST") including by reason of any
agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
7.1.1.3 approval by the shareholders of the Company
of:
(A) a merger, consolidation, statutory
share exchange, or reorganization
involving the Company, unless such
merger, consolidation, statutory share
exchange, or reorganization is a
"NON-CONTROL TRANSACTION." A
"NON-CONTROL TRANSACTION" shall mean a
merger, consolidation, statutory share
exchange, or reorganization of the
Company where:
14
<PAGE>
(1) the shareholders of the Company
immediately before such merger,
consolidation, statutory share
exchange, or reorganization, own
directly or indirectly
immediately following such
merger, consolidation, statutory
share exchange, or
reorganization more than 65% of
the combined voting power of the
outstanding voting securities of
the corporation resulting from
such merger, consolidation,
statutory share exchange, or
reorganization (the "SURVIVING
CORPORATION") in substantially
the same proportion as their
ownership of the Voting
Securities immediately before
such merger, consolidation,
statutory share exchange, or
reorganization,
(2) the individuals who were members
of the Incumbent Board
immediately prior to the
execution of the agreement
providing for such merger,
consolidation, statutory share
exchange, or reorganization
constitute a majority of the
members of the board of
directors of the Surviving
Corporation, or a corporation
beneficially directly or
indirectly owning a majority of
the voting securities of the
Surviving Corporation, and
(3) no Person other than
a) the Company,
b) any Subsidiary,
c) any employee benefit plan
(or any trust forming a
part thereof) maintained
by the Company, the
Surviving Corporation, or
any Subsidiary,
d) any person who immediately
prior to such merger,
consolidation, statutory
share exchange, or
reorganization had
Beneficial Ownership of
35% or more of the then
outstanding Voting
Securities, or
e) the Executive or any group
that includes the
Executive,
has Beneficial Ownership of 35%
or more of the combined voting
power of
15
<PAGE>
the Surviving Corporation's then
outstanding voting securities;
(B) a complete liquidation or dissolution
of the Company; or
(C) an agreement for the sale or other
disposition of all or substantially
all of the assets of the Company to
any Person (other than a transfer to a
Subsidiary), except for a Non-Control
Transaction) (provided that for
purposes of determining whether a
transaction is a Non-Control
Transaction, the disposition of assets
shall be deemed to constitute a merger
and the transferee of the assets shall
be deemed to be the Surviving
Corporation).
7.1.1.4 Notwithstanding the foregoing, a Change in
Control shall not be deemed to occur solely
because any Person (the "SUBJECT PERSON")
acquired beneficial ownership of more than
the permitted amount of the then outstanding
Voting Securities as a result of the
acquisition of Voting Securities by the
Company (other than an acquisition proposed
by or on behalf of, or pursuant to any
agreement or arrangement with, the Subject
Person) which, by reducing the number of
Voting Securities then outstanding,
increases the proportional number of shares
beneficially owned by the Subject Person;
PROVIDED, HOWEVER, that if a Change in
Control would occur (but for the operation
of this sentence) as a result of the
acquisition of Voting Securities by the
Company, and after such share acquisition by
the Company, the Subject Person becomes
beneficial owner of any additional Voting
Securities that increases the percentage of
the then outstanding Voting Securities
beneficially owned by the Subject Person to
35% or more, then, subject to any applicable
exceptions in Sections 7.1.1.1 or 7.1.1.3, a
Change in Control shall have occurred.
7.2 PAYMENTS AND BENEFITS UPON A CHANGE IN CONTROL. If Executive
is employed by the Company upon the occurrence of a Change in
Control, or if Executive's termination of employment
constitutes an Anticipatory Event, the following provisions
shall govern:
7.2.1 If an Anticipatory Event occurs or if, during the
first twenty-four months following the Change in
Control, the Company terminates the Executive's
employment other than for Cause or Disability or
death, or the Executive terminates his employment for
Good Reason, the Executive shall receive from the
Company in a lump sum, in cash, on the fifth (5th)
day following the Date of Termination (or, with
respect to an Anticipatory Event, the fifth (5th) day
following the Change in Control), all amounts earned
or accrued through the Date of Termination but not
paid as of the Date of Termination, including his
Base Salary, reimbursement for reasonable and
necessary expenses incurred by the Executive on
behalf of the Company prior to the Date of
Termination, vacation pay, and sick leave, a pro rata
portion (prorated through the Date of Termination) of
the
16
<PAGE>
Target Incentive Bonus in effect for the fiscal year
in which the Executive's employment is terminated
under this Section 7.2.1, and an amount equal to two
(2) times the Executive's Base Salary and Target
Incentive Bonus in effect at the Date of Termination.
7.2.2 If, during the first twenty-four months following the
Change in Control, the Executive terminates his
employment other than (i) for Good Reason or (ii)
under the conditions set forth in Section 7.2.3 or if
his employment is terminated for Cause or Disability
or on account of his death, the Company shall pay the
Executive all amounts earned or accrued through the
Date of Termination but not paid as of the Date of
Termination, including his Base Salary, reimbursement
for reasonable and necessary expenses incurred by the
Executive on behalf of the Company prior to the Date
of Termination, vacation pay, and sick leave. If the
Executive's employment is terminated by the Company
for Disability or by reason of the Executive's death,
the Company shall pay to the Executive or his
Beneficiaries the compensation provided in Sections
4.8.1 and 4.8.2 hereof. The Executive's entitlement
to any other compensation or benefits shall be
determined in accordance with the Company's employee
benefit plans and other applicable programs and
practices then in effect.
7.2.3 In the event that the Executive terminates his
employment (upon at least three months' notice) at
the end of the first fifteen (15) months of
employment after the Change in Control for other than
Good Reason, the Executive shall be entitled to a
severance benefit of one year's Base Salary and
Target Incentive Bonus, but shall waive any further
benefits hereunder except those provided in Section
7.2.2.
7.2.4 In the event of termination of Executive's employment
under Section 7.2.1, Executive shall be entitled to
continue to participate in the Company's group
medical, dental, life and disability plans and to
receive payment of an automobile allowance on the
same basis as Executive participated or received
immediately prior to the Notice of Termination (or
shall receive equivalent benefits) for a period of
two (2) years following the Date of Termination, or,
with respect to an Anticipatory Event, the date of
the Change in Control. Executive shall be responsible
for payment of premiums and expenses to the same
extent as prior to the Notice of Termination. In the
event that Executive obtains substantially equivalent
coverage or benefits from another source, the
Company's obligation under this Section 7.2.4 shall
terminate.
7.2.5 Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement
by seeking other employment or otherwise, and no such
payment shall be offset or reduced by the amount of
any compensation or benefits provided to the
Executive in any subsequent employment except as
provided in Section 7.2.4.
7.2.6 The severance pay and benefits provided for in
Sections 7.2.1 and 7.2.3 are in lieu of any other
severance pay to which the Executive may be entitled
under any other Company severance plan, program or
arrangement.
7.2.7 In the event the Executive's employment is terminated
without Cause or Executive for Good Reason terminates
his employment and Section 7.2.1 is applicable under
the circumstances of such termination,
17
<PAGE>
the restrictive covenants set forth in Section 5 of
this Agreement (except for Section 5.1) shall no
longer be effective.
7.3 EXCISE TAX PAYMENTS.
7.3.1 In the event that any payment or benefit (within the
meaning of Section 280G(b)(2) of the Code), paid or
payable to the Executive or for his benefit or
distributed or distributable pursuant to the terms of
this Agreement or otherwise in connection with, or
arising out of, his employment with the Company or a
Change in Control of the Company (a "PAYMENT" or
"PAYMENTS"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest
or penalties become payable by the Executive with
respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter
collectively referred to as the "EXCISE TAX"), then
the Executive will be entitled to receive an
additional payment (a "GROSS-UP PAYMENT") in an
amount such that after payment by the Executive of
all taxes (including any interest or penalties, other
than interest and penalties imposed by reason of the
Executive's failure to file timely a tax return or
pay taxes shown as due on his return, imposed with
respect to such taxes and the Excise Tax), including
any Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments,
PROVIDED, HOWEVER, that in no event shall the amount
of the Gross-Up Payment exceed an amount equal to
100% of the Executive's Base Salary and Target
Incentive Bonus in effect at the Date of Termination.
7.3.2 An initial determination as to whether a Gross-Up
Payment is required pursuant to this Agreement and
the amount of such Gross-Up Payment shall be made at
the Company's expense by an accounting firm selected
by the Company and reasonably acceptable to the
Executive which is designated as one of the five
largest accounting firms in the United States (the
"ACCOUNTING FIRM"). The Accounting Firm shall provide
its determination (the "DETERMINATION"), together
with detailed supporting calculations and
documentation, to the Company and the Executive
within five days of the Date of Termination, if
applicable, or such other time as requested by the
Company or by the Executive (provided the Executive
reasonably believes that any of the Payments may be
subject to the Excise Tax). If the Accounting Firm
determines that no Excise Tax is payable by the
Executive with respect to a Payment or Payments, it
shall furnish the Executive with an opinion
reasonably acceptable to the Executive that no Excise
Tax will be imposed with respect to any such Payment
or Payments. Within ten days of the delivery of the
Determination to the Executive, the Executive shall
have the right to dispute the Determination (the
"DISPUTE"). The Gross-Up Payment, if any, as
determined pursuant to this Section 7.3.2 shall be
paid by the Company to the Executive within five days
of the receipt of the Determination. The existence of
the Dispute shall not in any way affect the
Executive's right to receive the Gross-Up Payment in
accordance with the Determination. Upon the final
resolution of a Dispute, the Company shall promptly
pay to the Executive any additional amount required
by such resolution, or, if it is determined that the
Excise Tax is lower than originally determined, the
Executive shall repay to the Company the excess
amount of the Gross-Up Payment. If there is no
Dispute, the Determination shall be binding, final
and conclusive upon
18
<PAGE>
the Company and the Executive subject to the
application of Section 7.3.3 below.
7.3.3 Notwithstanding anything contained in this Agreement
to the contrary, in the event that, according to the
Determination, an Excise Tax will be imposed on any
Payment or Payments, the Company shall pay to the
applicable government taxing authorities as Excise
Tax withholding, the amount of the Excise Tax that
the Company has actually withheld from the Payment or
Payments.
7.4 FEES AND EXPENSES. The Company shall pay all legal fees and
related expenses (including the costs of experts, evidence and
counsel) incurred by the Executive as they become due as a
result of (a) the Executive's seeking to obtain or enforce any
right or benefit provided by this Agreement or by any other
plan or arrangement maintained by the Company under which the
Executive is or may be entitled to receive benefits; or (b)
the Executive's hearing before the Board as contemplated in
Section 4.2 of this Agreement; PROVIDED, HOWEVER, that the
circumstances set forth in Clauses (a) and (b) of this Section
7.4 occurred on or after a Change in Control or an
Anticipatory Event has occurred.
8. ARBITRATION. Except as may be otherwise provided in this Agreement, any
and all controversies or disputes, of whatever nature, between or among
the parties involving the meaning of words or provisions under this
Agreement, whether there has been a material breach or default hereof,
or whether the dispute or controversy is subject to arbitration, shall
be settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association by a sole arbitrator and
judgment upon any award rendered by the arbitrator shall be conclusive,
final, and binding, and may be entered in any court of appropriate
jurisdiction. With respect to such arbitration:
8.1 All questions as to the meaning of the above clause, shall be
resolved by the arbitrator and a decision thereon shall be
binding and not subject to judicial review.
8.2 Each party shall have the right to seek from a court of
appropriate jurisdiction equitable or provisional remedies
(such as temporary restraining orders, temporary injunctions,
and the like) before arbitration proceedings have been
commenced and an arbitrator has been selected, but once an
arbitrator has been selected and the arbitration proceedings
are continuing, thereafter the sole jurisdiction with respect
to equitable or provisional remedies shall be remanded to the
arbitrator.
8.3 Any arbitrator shall be a retired judge or an attorney who has
been licensed to practice for at least ten (10) years and is
currently licensed to practice in the state of Minnesota.
8.4 All arbitration proceedings shall be in the Association's
office in Minneapolis, Minnesota, or at such other location as
the parties may agree.
8.5 The arbitrator shall be selected by the parties within fifteen
(15) business days after a request for arbitration has been
made by one of the parties hereto. If the parties are unable
to agree among themselves, the parties shall ask for a panel
of arbitrators to be submitted by the American Arbitration
Association. If the parties are unable to select a sole
arbitrator from the panel supplied by the American Arbitration
Association within twenty (20) business days after such
submission, then the American Arbitration Association shall
select the sole arbitrator.
8.6 The arbitrator shall have the discretion to award attorneys'
fees and costs in favor of any party if, in the opinion of the
arbitrator, the dispute arose because one of the
19
<PAGE>
parties was not acting in good faith, or was in material
breach or default of any covenants, representations, terms
and/or conditions of this Agreement. If no such finding by the
arbitrator is made, each of the parties to the arbitration
shall bear the cost of their respective attorneys and their
own expenses, but share equally the cost of said arbitration
proceeding and the cost of the arbitrator. However, in the
event the arbitration proceeding involves a claim pursuant to
Section 5 or 7, any term or condition within Section 5 or 7
which is in conflict with any term or condition of this
Section 8 shall supersede and control over any provision in
this Section 8 to the contrary.
8.7 Any award of the arbitrator may be entered in any court of
appropriate jurisdiction pursuant to Minn. Stat. ss.572.08 et
seq., which statutes, relating to arbitration, are
incorporated herein by reference.
8.8 The arbitrator shall not have the authority to award exemplary
or punitive damages.
8.9 Any award of the arbitrator shall be based upon applicable
law, but findings of fact and conclusions of law shall not be
submitted as part of any award.
9. GENERAL PROVISIONS.
9.1 SUCCESSORS AND ASSIGNS.
9.1.1 This Agreement shall be binding upon and shall inure
to the benefit of the Company, its successors and
assigns and the Company shall require any successor
or assign to expressly assume and agree to perform
this Agreement in the same manner and to the same
extent that the Company would be required to perform
it if no such succession or assignment had taken
place. The term "COMPANY" as used herein shall
include such successors (including a Surviving
Corporation) and assigns. The terms "SUCCESSORS" or
"SUCCESSORS AND ASSIGNS" as used herein each shall
mean a corporation or other entity acquiring all or
substantially all the assets and business of the
Company (including this Agreement) whether by
operation of law or otherwise.
9.1.2 Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the
Executive, his beneficiaries or legal
representatives, except by will or the laws of
descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the
Executive's legal personal representative.
9.2 NO OFFSETS. In no event shall any amount payable to Executive
pursuant to this Agreement be reduced for purposes of
offsetting, either directly or indirectly, any indebtedness or
liability of Executive to the Company.
9.3 NOTICES. All notices, requests and demands given to or made
pursuant hereto shall, except as otherwise specified herein,
be in writing and be personally delivered or mailed postage
prepaid, registered or certified US mail to any party at its
address set forth on the last page of this Agreement. Either
party may, by notice hereunder, designate a changed address.
Any notice hereunder shall be deemed effectively given and
received: (1) if personally delivered, upon delivery; or (2)
if mailed, on the registered date or the date stamped on the
certified mail receipt.
9.4 WITHHOLDING. To the extent required by any applicable law,
including, without limitation, any federal, state or local
income tax or excise tax law or laws, the Federal
20
<PAGE>
Insurance Contributions Act, the Federal Unemployment Tax Act
or any comparable federal, state or local laws, the Company
retains the right to withhold such portion of any amount or
amounts payable to Executive under this Agreement as the
Company (on the written advice of outside counsel) deems
necessary.
9.5 CAPTIONS. The various headings or captions in this Agreement
are for convenience only and shall not affect the meaning or
interpretation of this Agreement.
9.6 GOVERNING LAW. The validity, interpretation, construction,
performance, enforcement and remedies of or relating to this
Agreement, and the rights and obligations of the parties
hereunder, shall be governed by the substantive laws of the
State of Minnesota (without regard to the conflict of laws,
rules or statutes of any jurisdiction), and any and every
legal proceeding arising out of or in connection with this
Agreement shall be brought in the appropriate courts of the
State of Minnesota, each of the parties hereby consenting to
the exclusive jurisdiction of said courts for this purpose.
9.7 CONSTRUCTION. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision
of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining
provisions of this Agreement.
9.8 WAIVERS. No failure on the part of either party to exercise,
and no delay in exercising, any right or remedy hereunder
shall operate as a waiver thereof; nor shall any single or
partial exercise of any right or remedy hereunder preclude any
other or further exercise thereof or the exercise of any other
right or remedy granted hereby or by any related document or
by law.
9.9 MODIFICATION. This Agreement may not be modified or amended
except by written instrument signed by the parties hereto.
9.10 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties hereto in
reference to all the matters herein agreed upon. This
Agreement replaces in full all prior employment agreements or
understandings of the parties hereto, except stock option
agreements, and any and all such prior agreements or
understandings, except stock option agreements, are hereby
rescinded by mutual agreement.
9.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original
but all of which together will constitute one and the same
instrument.
9.12 SURVIVAL. The parties expressly acknowledge and agree that the
provisions of this Agreement which by their express or implied
terms extend beyond the termination of Executive's employment
hereunder, shall continue in full force and effect
notwithstanding Executive's termination of employment
hereunder or the termination of this Agreement, respectively.
9.13 RIGHT TO COUNSEL. Employee acknowledges he is aware of his
right to obtain independent legal counsel of his own choosing
with respect to any matter or issue made or created by or
under this Agreement. Execution of this Agreement by the
Executive is an acknowledgement by the Executive that either
he has had the opportunity to review this Agreement to his own
satisfaction, has read and understood the terms and conditions
of this Agreement, has consulted with an attorney and has
21
<PAGE>
had the terms and conditions of this Agreement satisfactorily
explained to him, or has waived the right to seek his own
independent counsel, but nonetheless, acknowledges that he
understands the terms of this Agreement, and this Agreement is
executed and delivered freely and voluntarily by the Executive
without any force or coercion from the Company or any other
third party.
IN WITNESS WHEREOF, the parties hereto have caused this Executive
Employment Agreement to be duly executed and delivered as of the day and year
first above written.
COMPANY:
FUNCO, INC., a Minnesota corporation
By: /s/ David R. Pomije, CEO
-----------------------------------------
Name David R. Pomije
------------------------------------
Its Chairman of the Board and
Chief Executive Officer
EXECUTIVE:
/s/ Robert M. Hiben
-----------------------------------------
Robert M. Hiben
Address: 9235 Pierson Lake Drive
Chaska, Minnesota 55318
22
EXHIBIT 10.6 EXECUTIVE EMPLOYMENT AGREEMENT WITH JEFFREY R. GATESMITH
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("AGREEMENT"), effective the 19th
day of May, 1999, is by and between Funco, Inc., a Minnesota corporation
("COMPANY"), and Jeffrey R. Gatesmith ("EXECUTIVE"), a Minnesota resident.
RECITALS:
A. Executive is currently employed by the Company in the capacity
of Vice President of Retail Operations and Human Resources.
B. The Company is currently engaged in the sale of new and
previously played video games and video game equipment (the
"PRODUCTS") in its retail Funcoland stores, on its website, by
mail order, and to wholesale distributors, and the publication
of a magazine styled the "THE GAME INFORMER"(hereafter the
"COMPANY'S BUSINESS").
C. Executive has learned certain unique skills, talents,
contacts, judgment and knowledge, all to the benefit of the
Company, and has knowledge of the Company's Business,
strategies, and objectives.
D. The Board of Directors of the Company (the "BOARD") recognizes
that the possibility of a Change in Control (as hereinafter
defined) exists and that the threat or occurrence of a Change
in Control can result in significant distractions of the
Company's key management personnel because of the
uncertainties inherent in such a situation.
E. The Board has determined that it is essential and in the best
interest of the Company and its shareholders to retain the
services of the Executive in the event of the threat or
occurrence of a Change in Control and to ensure his continued
dedication and efforts in such event without undue concern for
his personal financial and employment security.
F. In order to induce the Executive to remain in the employ of
the Company, particularly in the event of a threat or
occurrence of a Change in Control, the Company desires to
enter into this Agreement with the Executive to provide the
Executive with certain payments and benefits during his
employment and following a Change in Control in the event his
employment is terminated as a result of, or in connection
with, a Change in Control.
In consideration of the foregoing Recitals, and the parties' mutual
covenants and undertakings contained in this Agreement, the Company and the
Executive agree as follows:
1. DEFINITIONS. Capitalized terms used in this Agreement shall have their
defined meaning throughout the Agreement. The following terms shall
have the meanings set forth below, unless the context clearly requires
otherwise.
1.1 "AGREEMENT" means this Executive Employment Agreement, as from
time to time amended.
1.2 "ANTICIPATORY EVENT" means the termination of Executive's
employment during the term of this Agreement or any renewal
thereof and prior to a Change in Control if it is reasonably
demonstrated by Executive that such termination (i) was at the
request of a third party who has taken steps reasonably
calculated to effect the Change in Control or (ii) otherwise
arose in connection with or anticipation of a Change in
Control.
<PAGE>
1.3 "BASE SALARY" means the total annual cash compensation payable
on a regular periodic basis, without regard to voluntary or
mandatory deferrals, as set forth at Section 3.1 of this
Agreement.
1.4 "BENEFICIARY" means the person or persons designated in
writing to the Company by Executive to receive any benefits
payable after Executive's death pursuant to this Agreement. In
the absence of such designation or in the event that all of
the persons so designated predecease Executive, Beneficiary
means the executor, administrator or personal representative
of Executive's estate.
1.5 "BOARD" means the Board of Directors of the Company.
1.6 "CAUSE" has the meaning set forth at Section 4.2 of this
Agreement.
1.7 "CHANGE IN CONTROL" has the meaning set forth at Section 7.1.1
of this Agreement.
1.8 "COMPANY" means all of the following, jointly and severally:
(a) Funco, Inc. and (b) any Successor.
1.9 "CONFIDENTIAL INFORMATION" means information that is
proprietary to the Company or proprietary to others and
entrusted to the Company, whether or not trade secrets, and
including, but not limited to, the Company's business plans,
advertising and/or marketing plans, financial performance,
financial projections, subscriber list, any other customer
lists, pricing information (prior to publication), personnel
matters, or any other matter considered or reasonably expected
to be considered confidential by the Company regarding the
Company's business and its employees.
1.10 "DATE OF TERMINATION" has the meaning set forth at Section
4.7.2 of this Agreement.
1.11 "DISABILITY" shall mean a physical or mental infirmity which
impairs the Executive's ability to substantially perform his
duties if it continues for a period of at least 180
consecutive days. Notwithstanding anything contained in this
Agreement to the contrary, until the Date of Termination
specified in a Notice of Termination relating to the
Executive's Disability, the Executive shall be entitled to
return to his position with the Company, in which event no
Disability of the Executive will be deemed to have occurred.
1.12 "EXECUTIVE" means Jeffrey R. Gatesmith and "Executive
Officers" means the Executive and Stanley A. Bodine, Robert M.
Hiben and David R. Pomije (as long as they continue to be
officers of the Company), and any individuals who may
subsequently serve in the same, or substantially the same,
positions, whether or not holding the same title.
1.13 "GOOD REASON" has the meaning set forth at Section 4.4 of this
Agreement.
1.14 "INCENTIVE BONUS" means the annual cash bonus payable to the
Executive as set forth in Section 3.1 of this Agreement.
1.15 "NOTICE OF TERMINATION" has the meaning set forth at Section
4.7.1 of this Agreement.
1.16 "PARENT CORPORATION" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the
Company if at the time the corporation other than the Company
owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations
in the chain.
2
<PAGE>
1.17 "PLAN" means any bonus or incentive compensation agreement,
plan, program, policy or arrangement sponsored, maintained or
contributed to by the Company, to which the Company is a party
or under which employees of the Company are covered,
including, without limitation, any stock option, restricted
stock or any other equity-based compensation plan, annual or
long-term incentive (bonus) plan, and any employee benefit
plan, such as a thrift, pension, profit sharing, deferred
compensation, medical, dental, disability, accident, life
insurance, automobile allowance, perquisite, fringe benefit,
vacation, sick or parental leave, severance or relocation plan
or policy or any other agreement, plan, program, policy or
arrangement intended to benefit employees or executive
officers of the Company.
1.18 "SUBSIDIARY" means any corporation at least a majority of
whose securities having ordinary voting power for the election
of directors (other than securities having such power only by
reason of the occurrence of a contingency) is at the time
owned by the Parent Corporation, the Company and/or one or
more Subsidiaries.
1.19 "SUCCESSOR" has the meaning set forth at Section 9.1.1 of this
Agreement.
1.20 "INVENTIONS" means ideas, improvements and discoveries,
whether or not such are patentable or copyrightable, and
whether or not in writing or reduced to practice.
1.21 "WORKS OF AUTHORSHIP" means writings, drawings, software, and
any other works of authorship, whether or not such are
copyrightable.
2. EMPLOYMENT, DUTIES AND TERM.
2.1 EMPLOYMENT. Upon the terms and conditions set forth in this
Agreement, the Company hereby employs Executive, and Executive
accepts such employment, as Vice President of Retail
Operations and Human Resources of the Company. Except as
expressly provided herein, termination of this Agreement by
either party or by mutual agreement of the parties shall also
terminate Executive's employment by the Company.
2.2 DUTIES. During the term of this Agreement, and excluding any
periods of vacation, sick, disability or other leave to which
Executive is entitled, Executive agrees to devote reasonable
attention and time during normal business hours to the
business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to
Executive hereunder and under the Company's bylaws, as amended
from time to time, to use Executive's reasonable best efforts
to perform faithfully and efficiently such responsibilities.
During the term of this Agreement, it shall not be a violation
of this Agreement for Executive to serve on corporate, civic
or charitable boards or committees, deliver lectures, fulfill
speaking engagements or teach at educational institutions and
manage personal investments, so long as such activities do not
significantly interfere with the performance of Executive's
responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been
conducted by Executive prior to the date of this Agreement,
the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to
the date of this Agreement shall not thereafter be deemed to
interfere with the performance of Executive's responsibilities
to the Company. Executive shall reasonably comply with the
Company policies and procedures; PROVIDED, that to the extent
such policies and procedures are inconsistent with this
Agreement, the provisions of this Agreement shall control.
2.3 CERTAIN PROPRIETARY INFORMATION. If Executive possesses any
proprietary information of another person or entity as a
result of prior employment or relationship, Executive
3
<PAGE>
shall honor any legal obligation that Executive has with that
person or entity with respect to such proprietary information.
2.4 TERM. This Agreement shall be effective as of the date set
forth above, and shall be in effect until March 31, 2001,
provided that, commencing on March 31, 2001, and on each March
31 thereafter, the term of this Agreement shall be renewed
automatically for the subsequent one-year period unless either
the Executive or the Company gives written notice to the other
party of its intent not to so extend this Agreement at least
60 days prior to the end of the term of this Agreement or the
applicable renewal period, as the case may be, or, if a Change
in Control has occurred during the term of this Agreement or
any renewal thereof, this Agreement shall be in effect for a
period of two (2) years following the date of the Change in
Control; PROVIDED, HOWEVER, that notwithstanding any such
notice by the Company not to extend, this Agreement and the
benefits provided hereunder shall not be terminated if prior
to the expiration of this Agreement an Anticipatory Event
shall have occurred, in which event, this Agreement shall
terminate only after such Person publicly announces that it
has abandoned all efforts to effect a Change in Control or, if
a Change in Control shall occur, two years following the
Change in Control.
2.5 RETURN OF PROPRIETARY PROPERTY. Executive agrees that all
property in Executive's possession belonging to the Company,
including without limitation, all documents, reports, manuals,
memoranda, computer print-outs, customer lists, credit cards,
keys, identification, products, access cards, automobiles and
all other property relating in any way to the business of the
Company are the exclusive property of the Company, even if
Executive authored, created or assisted in authoring or
creating such property. Executive shall return to the Company
all such documents and property immediately upon termination
of employment or at such earlier time as the Company may
reasonably request.
3. COMPENSATION, BENEFITS AND EXPENSES.
3.1 BASE SALARY/INCENTIVE BONUS. Subject to Section 4.8, during
the term of Executive's employment under this Agreement and
for as long thereafter as required pursuant to Section 4, the
Company shall pay Executive a Base Salary at an annual rate
that is not less than One Hundred Forty-Four Thousand Dollars
($144,000.00) or such higher annual rate as may from time to
time be approved by the Board, such Base Salary to be paid in
substantially equal regular periodic payments in accordance
with the Company's regular payroll practices. If Executive's
Base Salary is increased from time to time during the term of
Executive's employment under this Agreement, the increased
amount shall become the Base Salary for the remainder of the
term and any extensions of Executive's term of employment
under this Agreement and for as long thereafter as required
pursuant to Section 4, subject to any subsequent increases. In
addition, the Executive shall be entitled to an annual
Incentive Bonus of 25% of Base Salary ("Target Incentive
Bonus"), contingent upon and adjusted by the Company's
achievement of goals defined by the Compensation Committee of
the Board.
3.2 OTHER COMPENSATION AND BENEFITS. During the term of
Executive's employment under this Agreement and for as long
thereafter as required pursuant to Section 4, the Company
shall continue in full force and effect all Plans in which
Executive is participating as of the date of this Agreement or
in which Executive becomes entitled to participate after the
date of this Agreement (or Plans providing Executive with at
least substantially similar benefits) other than as a result
of the normal expiration of any such Plan in accordance with
its terms as in effect as of the date of this Agreement or the
date as of which Executive first becomes entitled to
participate in such Plan, as the case may be, and shall not
take or omit to take any action that would adversely affect
Executive's continued participation in any such Plans on at
least as favorable a basis
4
<PAGE>
to Executive as is the case on the date of this Agreement or
the date as of which Executive first becomes entitled to
participate in such Plan, as the case may be, or which would
materially reduce Executive's benefits in the future under any
such Plans or deprive Executive of any material benefit
enjoyed by Executive as of the date of this Agreement or the
date as of which Executive first becomes entitled to
participate in such Plan, as the case may be. Executive shall
be entitled to participate in or receive benefits under any
Plan made available by the Company in the future to its
executives and key management employees, subject to and on a
basis consistent with the terms, conditions and overall
administration of such Plans. Nothing paid to Executive under
any Plan presently in effect or made available in the future
shall be deemed to be in lieu of the Base Salary, bonuses,
incentives or compensation of any other nature otherwise
payable to Executive.
3.3 VACATION. For the 2000 fiscal year and each subsequent fiscal
year that begins during the term of Executive's employment
under this Agreement and for each fiscal year thereafter as
required pursuant to Section 4 of this Agreement, Executive
shall be entitled to four weeks paid vacation. The time or
times at which such paid vacation is to be taken shall be
reasonably determined by Executive consistent with Executive's
duties and obligations under this Agreement. Any such vacation
with respect to a fiscal year that is unused as of the last
day of such fiscal year shall be carried forward to the next
fiscal year, but any unused vacation over ten (10) days shall
be forfeited.
3.4 BUSINESS EXPENSES. During the term of Executive's employment
under this Agreement and as for as long thereafter as required
pursuant to Section 4, the Company shall, in accordance with,
and to the extent of, its uniform policies in effect from time
to time, bear all ordinary and necessary business expenses
incurred by Executive in performing Executive's duties as an
executive officer of the Company, including, without
limitation, all travel and living expenses while away from
home on business in the service of the Company, home telephone
expenses incurred in service of the Company, social and civic
club membership and participation expenses and entertainment
expenses, provided that Executive accounts promptly for such
expenses to the Company in the manner reasonably prescribed
from time to time by the Company.
3.5 AUTOMOBILE. During the term of Executive's employment under
this Agreement, the Executive shall be required to have and
maintain a personal automobile for use in the performance of
his duties under this Agreement and a valid drivers license to
operate Company vehicles. During the term of Executive's
employment under this Agreement, the Company shall pay the
Executive an allowance at an initial rate of $750.00 per month
to compensate him for all expenses incurred by him in
complying with these requirements.
3.6 OFFICE AND FACILITIES. During the term of Executive's
employment under this Agreement, the Company shall furnish
Executive with office space, at least equivalent in size,
quality, furnishings and in other respects to the office space
provided as of the date of this Agreement, and part-time
secretarial service, together with such other reasonable
facilities and services as are suitable, necessary and
appropriate.
3.7 FUTURE GRANT OF OPTIONS. Conditioned on Executive's remaining
employed by the Company, the Company may grant to Executive
options to acquire shares of the Company's common stock.
3.8 DISCRETIONARY BONUSES. Executive shall be eligible to receive
bonuses from time to time as may be awarded to Executive by
the Board or a compensation committee appointed by the Board
in the Board or the Committee's sole discretion.
5
<PAGE>
3.9 TERM LIFE INSURANCE. During the term of this Agreement, the
Company shall pay the premiums to purchase and maintain term
life insurance on the life of the Executive in an amount equal
to four times the Executive's Base Salary as in effect from
time to time, the benefit to be payable to such Beneficiary as
Executive shall advise the Company or the insurer from time to
time.
3.10 NONASSIGNABILITY OF BENEFITS. Executive shall not transfer,
assign, encumber, or otherwise dispose of his right to receive
payments hereunder and, in the event of any attempted transfer
or assignment, the Company shall have no further liability to
Executive under this Agreement.
4. EARLY TERMINATION.
4.1 EARLY TERMINATION. Subject to the respective continuing
obligations of the parties pursuant to Section 5, this Article
4 sets forth the terms for early termination of Executive's
employment under this Agreement.
4.2 TERMINATION BY THE COMPANY FOR CAUSE. The Company may
terminate this Agreement for Cause. A termination of
employment shall be for "Cause" if the Executive (i) has been
convicted of a felony, or (ii) has engaged in an act or acts
of personal dishonesty intended to result in substantial
personal enrichment of the Executive at the expense of the
Company, or (iii) has intentionally engaged in other conduct
that is demonstrably and materially injurious to the Company,
monetarily or otherwise; PROVIDED, HOWEVER, that no
termination of the Executive's employment shall be for Cause
as set forth in clause (ii) or (iii) above until (A) there
shall have been delivered to the Executive a copy of a written
notice setting forth that the Executive has been charged with
the conduct set forth in clause (ii) or (iii) and specifying
the particulars thereof in detail; (B) the Executive shall
have been provided an opportunity to be heard by the Board
(with the assistance of the Executive's counsel if the
Executive so desires); and (C) the Board (without including
the Executive if he is a member of the Board) unanimously
determines to terminate Executive's employment.
No act nor failure to act on the Executive's part shall be
considered "intentional" unless he has acted or failed to act
with an absence of good faith and without a reasonable belief
that his action or failure to act was in the best interest of
the Company. Notwithstanding anything contained in this
Agreement to the contrary, no failure to perform by the
Executive after a Notice of Termination is given by the
Executive will constitute Cause for purposes of this
Agreement.
4.3 TERMINATION BY COMPANY WITHOUT CAUSE. The Company may
terminate Executive's employment under this Agreement or any
renewal thereof at any time, provided that the Company shall
pay Executive all compensation due to Executive under this
Agreement for the remaining term of this Agreement or any
renewal thereof, as the case may be.
4.4 TERMINATION BY EXECUTIVE FOR GOOD REASON. Executive may
terminate Executive's employment under this Agreement for Good
Reason pursuant to Sections 4.4.1 through 4.4.6 hereof only
following a Change in Control (regardless of whether an
Anticipatory Change, as hereinafter defined, has occurred) and
pursuant to Sections 4.4.7 through 4.4.9 hereof either before
or following a Change in Control. Termination by Executive for
"GOOD REASON" shall mean termination of employment based on
any one or more of the following:
4.4.1 Assignment to Executive by the Company of duties
either prior to a Change in Control at the request of
a third party who has taken steps reasonably
calculated to effect the Change in Control
("Anticipatory
6
<PAGE>
Change") or after a Change in Control which are
inconsistent with Executive's position, duties,
responsibilities, and status with the Company
immediately prior to a Change in Control of the
Company, or a change in Executive's titles or offices
as in effect immediately prior to an Anticipatory
Change or a Change in Control of the Company, or any
removal of Executive from, or any failure to reelect
or reappoint Executive to, any of such positions,
except in connection with the termination of his
employment for Disability or Cause or as a result of
Executive's death or by Executive other than for Good
Reason;
4.4.2 A reduction by the Company of Executive's Base Salary
as in effect on the date hereof or as the same may be
increased from time to time during the term of this
Agreement or the Company's failure to increase
Executive's Base Salary (within 12 months of
Executive's last increase in base salary) after a
Change in Control of the Company in an amount which
is at least 50%, on a percentage basis, of the
average percentage increase in base salary for all
Executive Officers of the Company effected during the
preceding 12 months;
4.4.3 Any failure by the Company after a Change in Control
to continue in effect, or to provide a comparable
substitute for, any benefit plan or arrangement
(including, without limitation, any profit sharing
plan, executive supplemental medical plan, group life
insurance plan, and medical, dental, accident, and
disability plans but excluding incentive plans or
arrangements, which are the subject of Section
4.4.4), in which Executive is participating at the
time of a Change in Control of the Company (or any
other plans providing Executive with substantially
similar benefits) (hereinafter referred to as
"BENEFIT PLANS"), or the taking of any action by the
Company that would adversely affect Executive's
participation in or materially reduce Executive's
benefits under any such Benefit Plan or deprive
Executive of any material fringe benefit enjoyed by
Executive at the time of a Change in Control of the
Company;
4.4.4 Any failure by the Company after a Change in Control
to continue in effect, or to provide a comparable
substitute for, any incentive plan or arrangement
(including, without limitation, any incentive
compensation plan, long-term incentive plan, bonus or
contingent bonus arrangements or credits, the right
to receive performance awards, or similar incentive
compensation benefits) in which Executive is
participating, or is eligible to participate, at the
time of a Change in Control of the Company (or any
other plans or arrangements providing him with
substantially similar benefits, which may include the
payment of cash in lieu of stock or stock options)
(hereinafter referred to as "INCENTIVE PLANS") or the
taking of any action by the Company which would
adversely affect Executive's participation in any
such Incentive Plan;
4.4.5 If at the time of a Change in Control of the Company
Executive is employed at the Company's principal
executive offices, a relocation of such principal
executive offices after a Change in Control to a
location more than fifty miles outside of the
Minneapolis-St. Paul Metropolitan Area or requiring
the Executive to be based anywhere other than the
Company's principal executive offices at the time of
a Change in Control, or, if Executive is not employed
at the Company's principal executive offices at the
time of a Change in Control, Executive's relocation
after a Change in Control to any place other than the
location at which the
7
<PAGE>
Executive principally performed Executive's duties
prior to the Change in Control, or requiring travel
by Executive on the Company's business after a Change
in Control to an extent substantially greater than
Executive's business travel obligations at the time
of the Change in Control;
4.4.6 Any failure by the Company after a Change in Control
to provide Executive with at least the number of paid
vacation days to which the Executive is entitled at
the time of a Change in Control of the Company;
4.4.7 Any material breach by the Company of any provision
of this Agreement;
4.4.8 Any failure by the Company to obtain the assumption
of this Agreement by any successor or assign of the
Company as required by Section 9.1.1 hereof; or
4.4.9 Any purported termination of Executive's employment
which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section
4.7 hereof.
4.5 TERMINATION IN THE EVENT OF DEATH OR DISABILITY. The term of
Executive's employment under this Agreement shall terminate in
the event of Executive's death or Disability, subject to the
provisions of Section 4.8 hereof.
4.6 TERMINATION BY MUTUAL AGREEMENT. The parties may terminate
Executive's employment under this Agreement at any time by
mutual written agreement.
4.7 NOTICE OF TERMINATION; DATE OF TERMINATION; OFFER OF CONTINUED
EMPLOYMENT. The provisions of this Section 4.7 shall apply in
connection with any early termination of Executive's
employment under this Agreement pursuant to this Section 4.
4.7.1 For purposes of this Agreement, a "NOTICE OF
TERMINATION" shall mean a notice which shall indicate
the specific termination provisions in this Agreement
relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide the
basis for such termination. Any purported termination
by the Company or by Executive pursuant to this
Section 4 (other than a termination by mutual
agreement pursuant to Section 4.6 or death) shall be
communicated by written Notice of Termination to the
other party hereto.
4.7.2 For purposes of this Agreement, "DATE OF TERMINATION"
shall mean: (a) if Executive's employment is
terminated due to death, the last day of the month
first following the month during which Executive's
death occurs; (b) if Executive's employment is to be
terminated for Disability, thirty (30) calendar days
after Notice of Termination is given; (c) if
Executive's employment is terminated by the Company
for Cause or by Executive for Good Reason, the date
specified in the Notice of Termination; (d) if
Executive's employment is terminated by mutual
agreement of the parties, the date specified in such
agreement; or (e) if Executive's employment is
terminated for any other reason, the date specified
in the Notice of Termination, which in no event shall
be a date earlier than thirty (30) calendar days
after the date on which a Notice of Termination is
given, unless an earlier date has been expressly
agreed to by Executive in writing either in advance
of, or after, receiving such Notice of Termination;
PROVIDED, HOWEVER, if within thirty (30) calendar
days after giving of a Notice of Termination the
recipient of the Notice of
8
<PAGE>
Termination notifies the other party that a dispute
exists concerning the termination, then, unless
otherwise determined by the arbitrator or the court
making the final determination, the Date of
Termination shall be the date on which the dispute is
finally determined, whether by mutual written
agreement of the parties, by final and binding
arbitration or by final judgment, order or decree of
a court of competent jurisdiction (the time for
appeal therefrom having expired or no appeal having
been perfected).
4.7.3 If this Agreement is terminated other than by reason
of (a) the expiration of the term hereof as described
at Section 2.4, (b) Executive's Disability or death,
(c) Executive's termination for Cause pursuant to
Section 4.2, or (d) by mutual agreement of the
parties pursuant to Section 4.6, Executive may, but
shall not be required to, not later than ten (10)
days after the Date of Termination, provide a written
offer of continued employment with the Company in
accordance with the terms of this Agreement which
terms shall, in the case of a termination by
Executive for Good Reason pursuant to Section 4.4,
include the Company taking any such steps as may be
necessary to eliminate in a manner reasonably
satisfactory to Executive any conditions which
created such Good Reason for such termination. Within
ten (10) days of its receipt of such offer, the
Company shall provide Executive with a written
acceptance or rejection of such offer. Failure of the
Company to so accept or reject such offer within such
period shall be deemed to be a rejection of such
offer. The parties hereby acknowledge that
Executive's failure to provide such offer to the
Company shall in no way impair, affect or constitute
a waiver of Executive's right to enforce the
Company's obligations under this Agreement and the
Company shall not assert such failure as a defense in
any action or proceeding by Executive to enforce the
Company's obligations under this Agreement.
4.8 COMPENSATION UPON TERMINATION, DEATH OR DURING DISABILITY.
4.8.1 If the Executive shall become disabled or
incapacitated to the extent that he is unable to
perform his duties hereunder, by reason of medically
determinable physical or mental impairment, as
determined by a doctor mutually acceptable to the
Company and the Executive and retained by the
Company, Executive shall nevertheless continue to
receive the compensation and benefits provided under
the terms of this Agreement as follows: 100% of such
compensation and benefits for a period of six months,
but not beyond the Date of Termination, and 65%
thereafter until the Date of Termination. Such
benefits noted herein shall be reduced by any
benefits otherwise provided to the Executive during
such period under the provisions of disability
insurance coverage in effect for the Company's
employees. Thereafter, Executive shall be eligible to
receive benefits provided by the Company under the
provisions of disability insurance coverage in effect
for the Company's employees. Upon returning to active
full-time employment, the Executive's full
compensation as set forth in this Agreement shall be
reinstated as of the date of commencement of such
activities. In the event that the Executive returns
to active employment on other than a full-time basis,
then his compensation (as set forth in Section 3 of
this Agreement) shall be reduced in proportion to the
time spent in said employment, or as shall otherwise
be agreed to by the parties.
9
<PAGE>
4.8.2 If Executive's employment under this Agreement is
terminated on account of Disability or death, the
Company shall, within ten (10) fiscal days following
the Date of Termination, pay any amounts due to
Executive under this Agreement through the Date of
Termination, including, without limitation, amounts
to which Executive is entitled under any Plan in
accordance with the terms of such Plan, and further
including, without limitation, a pro rata portion
(prorated through the Date of Termination) of any
Target Incentive Bonus or other annual or long-term
bonus or incentive payments (for performance periods
in effect at the Date of Termination) to which
Executive would have been entitled had Executive
remained continuously employed through the end of
such performance periods and continued to perform
Executive's duties in the same manner as performed
immediately prior to the Executive's death or
Disability.
4.8.3 If Executive's employment under this Agreement is
terminated by the Company for Cause or, except as
otherwise provided in Section 7.2.3, by Executive for
other than Good Reason, the Company shall pay
Executive only the Base Salary through the Date of
Termination and any amounts to which the Executive is
entitled under any Plan in accordance with the terms
of such Plan.
4.8.4 If Executive's employment under this Agreement is
terminated by the mutual agreement of the parties
under Section 4.6, the Company shall provide
Executive with the payments and benefits specified in
the agreement.
4.8.5 If the Company terminates Executive's employment
hereunder without Cause other than in the event of
death or Disability (it being understood that a
purported termination for Disability or for Cause
which is disputed and finally determined not to have
been proper termination for Cause or Disability shall
be a termination by the Company without Cause) or if
Executive terminates his employment hereunder for
Good Reason in accordance with Section 4.4 (except,
in each case, following a Change in Control or
pursuant to an Anticipatory Event, which shall be
governed by Section 7 hereof and not by this Section
4.8.5), the Company shall:
4.8.5.1 continue to pay Executive's Base Salary in
accordance with Section 3.1 at the annual
rate in effect hereunder immediately prior
to the Date of Termination in the same
manner as if Executive had remained
continuously employed for the unexpired term
of this Agreement;
4.8.5.2 cause Executive's continued participation in
all Plans in accordance with Section 3.2 of
this Agreement as if Executive remained
continuously employed with the Company for
the unexpired term of this Agreement for all
purposes, including, without limitation,
grants, awards, accruals and vesting
thereunder; provided that, if such continued
participation is not permissible under
applicable law, the Company shall provide
Executive with benefits substantially
similar to those to which Executive would
have been entitled under those Plans in
which Executive's continued participation is
not permissible, and
10
<PAGE>
4.8.5.3 reimburse the Executive for outplacement
expenses up to $10,000, which amount shall
be payable for services provided within the
first twelve months following the Date of
Termination upon submission to the Company
of appropriate documentation evidencing
Executive's payment for such services;
4.8.6 The payments determined pursuant to Section 4.8.5
shall be mitigated to the extent of Executive's
"earned income" within the meaning of Section
911(d)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code") during the remainder of the
period with respect to which such payments pursuant
to Section 4.8.5 are required to be paid, except if
the termination arises under Section 7, in which
event Section 7.2.5 shall govern.
5. RESTRICTIVE COVENANTS. Except as otherwise provided in this Agreement,
the Executive will not, during the period of his employment with the
Company, and for a period of one (1) year thereafter (except for
Section 5.1, with the time therein set forth), directly or indirectly,
for himself or on behalf of or in conjunction with any other person,
company, partnership, corporation or business of whatever nature:
5.1 CONFIDENTIAL INFORMATION. Reveal to any person or entity
outside of the Company, except as may be explicitly necessary
as part of the direct responsibilities of the Executive's
position with the Company, any Confidential Information.
Executive shall keep the Company's confidential documents
secure and avoid the inadvertent or intentional disclosure of
the Company's business matters inside and/or outside the
Company. Disclosure of Confidential Information within the
Company shall only be on a need-to-know basis, as is required
or necessary to carry out the Executive's duties as an
employee of the Company. Executive will use reasonable and
prudent care to safeguard and protect and prevent the
unauthorized use and disclosure of Confidential Information.
The obligations contained in this Section 5.1 will survive for
as long as the Company, in its sole judgment, considers the
information to be Confidential Information. The obligations
under this Section 5.1 will not apply to any Confidential
Information that is now or becomes generally available to the
public through no fault of Executive or to Executive's
disclosure of any Confidential Information required by law or
judicial or administrative process.
5.2 NON-COMPETITION. Directly or indirectly, own (except as a
shareholder of up to 5% of the outstanding stock in a publicly
traded corporation), manage, operate, participate in
ownership, participate in management, participate in operation
or control, or be employed by, or act as a consultant to, or
become an independent contractor with, or become an adviser
to, or be connected in any manner with, any individual or
other entity which operates a store or has an interest in a
business that meaningfully competes with the Company within an
area closer than 15 miles from any open and operating
Funcoland store or which publishes a video game magazine with
distribution in any city where Funcoland retail stores are
located, now or at the applicable time, or which sells the
Products via the internet. Notwithstanding the foregoing, it
shall not be considered that Executive is meaningfully
competing with business of the Company in the event that he is
employed by a company in which (i) the gross sales of such
company from the sale of Products either in retail stores or
via the internet and/or (ii) the revenues from a video game
magazine are less than 15% of the gross sales or revenues,
respectively, of such company (including any subsidiaries or
affiliated companies). However, in the event Executive would
be in violation of this provision, but is not working in or
directly with a division or department that is primarily
involved with Products or which publishes a video game
magazine, Executive shall not be in violation of this
provision.
11
<PAGE>
5.3 NON-ENTICEMENT. Directly or indirectly interfere with the
contractual or other relationships between the Company and any
other employees, independent contractors, consultants,
prospective employees, prospective consultants, prospective
independent contractors to the Company, to be either employed
by or retained by the Company, or induce the Company's other
employees to leave the employ of the Company.
5.4 NON-CUSTOMER INTERFERENCE. Call upon any person or entity
which is/was a customer or prospective customer or vendor of
the Company (including the Subsidiaries thereof) in direct
competition with the current Business of the Company or known
planned products or services of the Company, or its
Subsidiaries. As used herein, the term "customer" means any
entity to whom the Company, or its Subsidiaries, has provided
services within the twelve (12) month period prior to the date
of Executive's termination; the term "prospective customer"
means any entity that has been subject to documented sales and
marketing activity, other than mass mailings, by the Company,
or its Subsidiaries, within the twelve (12) month period prior
to the date of Executive's termination; and "vendor" means any
entity serving as a source for any products sold by the
Company or entity producing products or services for the
Company to enable it to provide products and services to the
Company's customers.
5.5 NON-MERGER INTERFERENCE. Call upon, for the purpose of
acquiring or performing services for such entity, any
prospective acquisition or merger candidate which was either
called upon by the Company, or its Subsidiaries, or for which
the Company, or its Subsidiaries, made an acquisition or
merger analysis during the six (6) month period prior to the
date of Executive's termination.
5.6 INTERPRETATION. It is agreed by the parties that the foregoing
covenants in Sections 5.1 through 5.5, inclusive, impose a
reasonable restraint on Executive in light of the Company's
Business and related activities on the date of the execution
of this Agreement.
5.7 REMEDIES. Executive agrees that any breach or threatened
breach of the covenants set forth in this Section 5 will cause
the Company irreparable harm for which there is no adequate
remedy at law, and, without limiting other rights and remedies
the Company may have at law or under and pursuant to this
Agreement, Executive consents to remedies pursuant to this
Section 5.7, including, but not limited to, the issuance of an
injunction in favor of the Company enjoining the breach of any
of the aforesaid covenants by any court of appropriate
jurisdiction. Such injunction shall provide the Company with
at least a one (1) year contractual protection agreed to by
the parties, and in the event the Executive violates the terms
of the injunction, Executive agrees that a court of
appropriate jurisdiction shall have the power to extend the
length or breadth of the injunction to provide the Company
with the full measure of protection intended by this
Agreement, including, but not limited to, the extension of
such injunction for a reasonable period of time in order to
eliminate any commercial advantage which may be derived from a
misappropriation of Confidential Information or a breach or
default of the covenants set forth in Sections 5.2 through
5.5, inclusive. If any or all of the aforesaid covenants are
held not to be enforceable because of the scope or duration of
such covenant, or if applicable, the area covered by such
covenants, the parties agree that a court of appropriate
jurisdiction shall make such determination, and the court
shall have the power to reduce the scope, duration, and area
of any covenant (or one or more of the foregoing) to the
extent which allows maximum scope, duration and area as
permitted by applicable law. The covenants in this Section 5
protect not only the Company but also any operations
controlled by the Company or controlling the Company, whether
a Parent Corporation, Subsidiary, brother/sister corporation
or affiliate. The Executive shall pay reasonable attorneys'
fees, costs and expenses that may be incurred by the Company
in enforcing one or
12
<PAGE>
more of the covenants set forth in this Section 5. Section 5
shall have independent legal significance and shall survive
termination of this Agreement.
6. INVENTIONS.
6.1 DISCLOSURE AND ASSIGNMENT OF INVENTIONS AND OTHER WORKS.
Executive shall promptly disclose to the Company in writing
all Inventions and Works of Authorship which are conceived,
made, discovered, written or created by Executive alone or
jointly with another person, group or entity, whether during
the normal hours of his employment at the Company or on
Executive's own time, during the term of this Agreement and
for one year after termination of this Agreement. Executive
shall assign all rights to all such Inventions and Works of
Authorship to the Company. Executive shall give the Company
all the assistance it reasonably requires in order for Company
to perfect, protect, and use its rights to Inventions and
Works of Authorship. Executive shall sign all such documents,
take all such actions and supply all such information that the
Company considers necessary or desirable in order to transfer
or record the transfer of Executive's entire right, title and
interest in such Inventions and Works of Authorship; and in
order to enable the Company to obtain exclusive patent,
copyright, or other legal protection for Inventions and Works
of Authorship. The Company shall bear any reasonable expenses
in this regard.
6.2 NOTICE: MINNESOTA LAW EXEMPTS FROM THIS AGREEMENT "AN
INVENTION FOR WHICH NO EQUIPMENT, SUPPLIES, FACILITY OR TRADE
SECRET INFORMATION OF THE COMPANY WAS USED AND WHICH WAS
DEVELOPED ENTIRELY ON THE EXECUTIVE'S OWN TIME, AND (1) WHICH
DOES NOT RELATE (a) TO THE BUSINESS OF THE COMPANY OR (b) TO
THE COMPANY'S ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR
DEVELOPMENT, OR (2) WHICH DOES NOT RESULT FROM ANY WORK
PERFORMED BY THE EXECUTIVE FOR THE COMPANY."
6.3 ADDITIONAL EXCLUSIONS. The Inventions and Works of Authorship
set forth in Schedule A (if no Schedule A is attached, there
is nothing to disclose) to this Agreement which Executive owns
or controls shall also be excluded from operation of Section
6.1 of this Agreement, and Executive represents that such
Inventions and Works of Authorship were conceived, made,
written, or created by him prior to employment with the
Company (although they may be useful to the Company), its
Subsidiaries or affiliates. Other than the Inventions and
Works of Authorship listed in Schedule A, Executive does not
own or control rights in any Inventions or Works of Authorship
and Executive shall not assert any such rights against the
Company.
7. CHANGE IN CONTROL.
7.1 DEFINITIONS. For the purposes of this Agreement, the following
words and phrases shall have the following meanings:
7.1.1 "CHANGE IN CONTROL" shall mean any of the following
events:
7.1.1.1 an acquisition of any voting securities of
the Company (the "VOTING SECURITIES") by any
"PERSON" (as the term person is used for
purposes of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934 (the
"EXCHANGE Act")), immediately after which
such Person (other than the Executive or any
group that includes the Executive) has
"BENEFICIAL OWNERSHIP" (within the meaning
of Rule 13d-3 promulgated under the Exchange
Act) of 35% or more of the combined voting
power of the Company's then outstanding
Voting Securities; PROVIDED,
13
<PAGE>
HOWEVER, that in determining whether a
Change in Control has occurred, Voting
Securities that are acquired in a
"NON-CONTROL ACQUISITION" (as hereinafter
defined) shall not constitute an acquisition
which would cause a Change in Control. A
"NON-CONTROL ACQUISITION" shall be an
acquisition by
(A) an employee benefit plan (or a trust
forming a part thereof) maintained by
(1) the Company or (2) any corporation
or other person of which a majority of
the voting power or voting equity
securities or equity interest is
owned, directly or indirectly, by the
Company (for purposes of this
definition a "SUBSIDIARY"),
(B) the Company or any of its
Subsidiaries,
(C) any person in connection with a
"NON-CONTROL TRANSACTION" (as
hereinafter defined), or
(D) the Executive or any group that
includes the Executive;
7.1.1.2 the individuals who, as of the date hereof,
are members of the Board (the "INCUMBENT
BOARD") and other individuals who, as
provided below, are considered members of
the Incumbent Board, cease for any reason to
constitute a majority of the members of the
Board; PROVIDED, HOWEVER, that if the
election, or nomination for election by the
Company's common shareholders, of any new
director was approved by a vote of a
majority of the Incumbent Board, such new
director shall, for purposes of this
Agreement, be considered a member of the
Incumbent Board; PROVIDED FURTHER, HOWEVER,
that no individual shall be considered a
member of the Incumbent Board if such
individual initially assumed office as a
result of either an actual or threatened
"ELECTION CONTEST" (as described in Rule
14a-11 promulgated under the Exchange Act)
or other actual or threatened solicitation
of proxies or consents by or on behalf of a
person other than the Board (a "PROXY
CONTEST") including by reason of any
agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
7.1.1.3 approval by the shareholders of the Company
of:
(A) a merger, consolidation, statutory
share exchange, or reorganization
involving the Company, unless such
merger, consolidation, statutory share
exchange, or reorganization is a
"NON-CONTROL TRANSACTION." A
"NON-CONTROL TRANSACTION" shall mean a
merger, consolidation, statutory share
exchange, or reorganization of the
Company where:
14
<PAGE>
(1) the shareholders of the Company
immediately before such merger,
consolidation, statutory share
exchange, or reorganization, own
directly or indirectly
immediately following such
merger, consolidation, statutory
share exchange, or
reorganization more than 65% of
the combined voting power of the
outstanding voting securities of
the corporation resulting from
such merger, consolidation,
statutory share exchange, or
reorganization (the "SURVIVING
CORPORATION") in substantially
the same proportion as their
ownership of the Voting
Securities immediately before
such merger, consolidation,
statutory share exchange, or
reorganization,
(2) the individuals who were members
of the Incumbent Board
immediately prior to the
execution of the agreement
providing for such merger,
consolidation, statutory share
exchange, or reorganization
constitute a majority of the
members of the board of
directors of the Surviving
Corporation, or a corporation
beneficially directly or
indirectly owning a majority of
the voting securities of the
Surviving Corporation, and
(3) no Person other than
a) the Company,
b) any Subsidiary,
c) any employee benefit plan
(or any trust forming a
part thereof) maintained
by the Company, the
Surviving Corporation, or
any Subsidiary,
d) any person who immediately
prior to such merger,
consolidation, statutory
share exchange, or
reorganization had
Beneficial Ownership of
35% or more of the then
outstanding Voting
Securities, or
e) the Executive or any group
that includes the
Executive,
has Beneficial Ownership of 35%
or more of the combined voting
power of
15
<PAGE>
the Surviving Corporation's then
outstanding voting securities;
(B) a complete liquidation or dissolution
of the Company; or
(C) an agreement for the sale or other
disposition of all or substantially
all of the assets of the Company to
any Person (other than a transfer to a
Subsidiary), except for a Non-Control
Transaction) (provided that for
purposes of determining whether a
transaction is a Non-Control
Transaction, the disposition of assets
shall be deemed to constitute a merger
and the transferee of the assets shall
be deemed to be the Surviving
Corporation).
7.1.1.4 Notwithstanding the foregoing, a Change in
Control shall not be deemed to occur solely
because any Person (the "SUBJECT PERSON")
acquired beneficial ownership of more than
the permitted amount of the then outstanding
Voting Securities as a result of the
acquisition of Voting Securities by the
Company (other than an acquisition proposed
by or on behalf of, or pursuant to any
agreement or arrangement with, the Subject
Person) which, by reducing the number of
Voting Securities then outstanding,
increases the proportional number of shares
beneficially owned by the Subject Person;
PROVIDED, HOWEVER, that if a Change in
Control would occur (but for the operation
of this sentence) as a result of the
acquisition of Voting Securities by the
Company, and after such share acquisition by
the Company, the Subject Person becomes
beneficial owner of any additional Voting
Securities that increases the percentage of
the then outstanding Voting Securities
beneficially owned by the Subject Person to
35% or more, then, subject to any applicable
exceptions in Sections 7.1.1.1 or 7.1.1.3, a
Change in Control shall have occurred.
7.2 PAYMENTS AND BENEFITS UPON A CHANGE IN CONTROL. If Executive
is employed by the Company upon the occurrence of a Change in
Control, or if Executive's termination of employment
constitutes an Anticipatory Event, the following provisions
shall govern:
7.2.1 If an Anticipatory Event occurs or if, during the
first twenty-four months following the Change in
Control, the Company terminates the Executive's
employment other than for Cause or Disability or
death, or the Executive terminates his employment for
Good Reason, the Executive shall receive from the
Company in a lump sum, in cash, on the fifth (5th)
day following the Date of Termination (or, with
respect to an Anticipatory Event, the fifth (5th) day
following the Change in Control), all amounts earned
or accrued through the Date of Termination but not
paid as of the Date of Termination, including his
Base Salary, reimbursement for reasonable and
necessary expenses incurred by the Executive on
behalf of the Company prior to the Date of
Termination, vacation pay, and sick leave, a pro rata
portion (prorated through the Date of Termination) of
the
16
<PAGE>
Target Incentive Bonus in effect for the fiscal year
in which the Executive's employment is terminated
under this Section 7.2.1, and an amount equal to two
(2) times the Executive's Base Salary and Target
Incentive Bonus in effect at the Date of Termination.
7.2.2 If, during the first twenty-four months following the
Change in Control, the Executive terminates his
employment other than (i) for Good Reason or (ii)
under the conditions set forth in Section 7.2.3 or if
his employment is terminated for Cause or Disability
or on account of his death, the Company shall pay the
Executive all amounts earned or accrued through the
Date of Termination but not paid as of the Date of
Termination, including his Base Salary, reimbursement
for reasonable and necessary expenses incurred by the
Executive on behalf of the Company prior to the Date
of Termination, vacation pay, and sick leave. If the
Executive's employment is terminated by the Company
for Disability or by reason of the Executive's death,
the Company shall pay to the Executive or his
Beneficiaries the compensation provided in Sections
4.8.1 and 4.8.2 hereof. The Executive's entitlement
to any other compensation or benefits shall be
determined in accordance with the Company's employee
benefit plans and other applicable programs and
practices then in effect.
7.2.3 In the event that the Executive terminates his
employment (upon at least three months' notice) at
the end of the first fifteen (15) months of
employment after the Change in Control for other than
Good Reason, the Executive shall be entitled to a
severance benefit of one year's Base Salary and
Target Incentive Bonus, but shall waive any further
benefits hereunder except those provided in Section
7.2.2.
7.2.4 In the event of termination of Executive's employment
under Section 7.2.1, Executive shall be entitled to
continue to participate in the Company's group
medical, dental, life and disability plans and to
receive payment of an automobile allowance on the
same basis as Executive participated or received
immediately prior to the Notice of Termination (or
shall receive equivalent benefits) for a period of
two (2) years following the Date of Termination, or,
with respect to an Anticipatory Event, the date of
the Change in Control. Executive shall be responsible
for payment of premiums and expenses to the same
extent as prior to the Notice of Termination. In the
event that Executive obtains substantially equivalent
coverage or benefits from another source, the
Company's obligation under this Section 7.2.4 shall
terminate.
7.2.5 Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement
by seeking other employment or otherwise, and no such
payment shall be offset or reduced by the amount of
any compensation or benefits provided to the
Executive in any subsequent employment except as
provided in Section 7.2.4.
7.2.6 The severance pay and benefits provided for in
Sections 7.2.1 and 7.2.3 are in lieu of any other
severance pay to which the Executive may be entitled
under any other Company severance plan, program or
arrangement.
7.2.7 In the event the Executive's employment is terminated
without Cause or Executive for Good Reason terminates
his employment and Section 7.2.1 is applicable under
the circumstances of such termination,
17
<PAGE>
the restrictive covenants set forth in Section 5 of
this Agreement (except for Section 5.1) shall no
longer be effective.
7.3 EXCISE TAX PAYMENTS.
7.3.1 In the event that any payment or benefit (within the
meaning of Section 280G(b)(2) of the Code), paid or
payable to the Executive or for his benefit or
distributed or distributable pursuant to the terms of
this Agreement or otherwise in connection with, or
arising out of, his employment with the Company or a
Change in Control of the Company (a "PAYMENT" or
"PAYMENTS"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest
or penalties become payable by the Executive with
respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter
collectively referred to as the "EXCISE TAX"), then
the Executive will be entitled to receive an
additional payment (a "GROSS-UP PAYMENT") in an
amount such that after payment by the Executive of
all taxes (including any interest or penalties, other
than interest and penalties imposed by reason of the
Executive's failure to file timely a tax return or
pay taxes shown as due on his return, imposed with
respect to such taxes and the Excise Tax), including
any Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments,
PROVIDED, HOWEVER, that in no event shall the amount
of the Gross-Up Payment exceed an amount equal to
100% of the Executive's Base Salary and Target
Incentive Bonus in effect at the Date of Termination.
7.3.2 An initial determination as to whether a Gross-Up
Payment is required pursuant to this Agreement and
the amount of such Gross-Up Payment shall be made at
the Company's expense by an accounting firm selected
by the Company and reasonably acceptable to the
Executive which is designated as one of the five
largest accounting firms in the United States (the
"ACCOUNTING FIRM"). The Accounting Firm shall provide
its determination (the "DETERMINATION"), together
with detailed supporting calculations and
documentation, to the Company and the Executive
within five days of the Date of Termination, if
applicable, or such other time as requested by the
Company or by the Executive (provided the Executive
reasonably believes that any of the Payments may be
subject to the Excise Tax). If the Accounting Firm
determines that no Excise Tax is payable by the
Executive with respect to a Payment or Payments, it
shall furnish the Executive with an opinion
reasonably acceptable to the Executive that no Excise
Tax will be imposed with respect to any such Payment
or Payments. Within ten days of the delivery of the
Determination to the Executive, the Executive shall
have the right to dispute the Determination (the
"DISPUTE"). The Gross-Up Payment, if any, as
determined pursuant to this Section 7.3.2 shall be
paid by the Company to the Executive within five days
of the receipt of the Determination. The existence of
the Dispute shall not in any way affect the
Executive's right to receive the Gross-Up Payment in
accordance with the Determination. Upon the final
resolution of a Dispute, the Company shall promptly
pay to the Executive any additional amount required
by such resolution, or, if it is determined that the
Excise Tax is lower than originally determined, the
Executive shall repay to the Company the excess
amount of the Gross-Up Payment. If there is no
Dispute, the Determination shall be binding, final
and conclusive upon
18
<PAGE>
the Company and the Executive subject to the
application of Section 7.3.3 below.
7.3.3 Notwithstanding anything contained in this Agreement
to the contrary, in the event that, according to the
Determination, an Excise Tax will be imposed on any
Payment or Payments, the Company shall pay to the
applicable government taxing authorities as Excise
Tax withholding, the amount of the Excise Tax that
the Company has actually withheld from the Payment or
Payments.
7.4 FEES AND EXPENSES. The Company shall pay all legal fees and
related expenses (including the costs of experts, evidence and
counsel) incurred by the Executive as they become due as a
result of (a) the Executive's seeking to obtain or enforce any
right or benefit provided by this Agreement or by any other
plan or arrangement maintained by the Company under which the
Executive is or may be entitled to receive benefits; or (b)
the Executive's hearing before the Board as contemplated in
Section 4.2 of this Agreement; PROVIDED, HOWEVER, that the
circumstances set forth in Clauses (a) and (b) of this Section
7.4 occurred on or after a Change in Control or an
Anticipatory Event has occurred.
8. ARBITRATION. Except as may be otherwise provided in this Agreement, any
and all controversies or disputes, of whatever nature, between or among
the parties involving the meaning of words or provisions under this
Agreement, whether there has been a material breach or default hereof,
or whether the dispute or controversy is subject to arbitration, shall
be settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association by a sole arbitrator and
judgment upon any award rendered by the arbitrator shall be conclusive,
final, and binding, and may be entered in any court of appropriate
jurisdiction. With respect to such arbitration:
8.1 All questions as to the meaning of the above clause, shall be
resolved by the arbitrator and a decision thereon shall be
binding and not subject to judicial review.
8.2 Each party shall have the right to seek from a court of
appropriate jurisdiction equitable or provisional remedies
(such as temporary restraining orders, temporary injunctions,
and the like) before arbitration proceedings have been
commenced and an arbitrator has been selected, but once an
arbitrator has been selected and the arbitration proceedings
are continuing, thereafter the sole jurisdiction with respect
to equitable or provisional remedies shall be remanded to the
arbitrator.
8.3 Any arbitrator shall be a retired judge or an attorney who has
been licensed to practice for at least ten (10) years and is
currently licensed to practice in the state of Minnesota.
8.4 All arbitration proceedings shall be in the Association's
office in Minneapolis, Minnesota, or at such other location as
the parties may agree.
8.5 The arbitrator shall be selected by the parties within fifteen
(15) business days after a request for arbitration has been
made by one of the parties hereto. If the parties are unable
to agree among themselves, the parties shall ask for a panel
of arbitrators to be submitted by the American Arbitration
Association. If the parties are unable to select a sole
arbitrator from the panel supplied by the American Arbitration
Association within twenty (20) business days after such
submission, then the American Arbitration Association shall
select the sole arbitrator.
8.6 The arbitrator shall have the discretion to award attorneys'
fees and costs in favor of any party if, in the opinion of the
arbitrator, the dispute arose because one of the
19
<PAGE>
parties was not acting in good faith, or was in material
breach or default of any covenants, representations, terms
and/or conditions of this Agreement. If no such finding by the
arbitrator is made, each of the parties to the arbitration
shall bear the cost of their respective attorneys and their
own expenses, but share equally the cost of said arbitration
proceeding and the cost of the arbitrator. However, in the
event the arbitration proceeding involves a claim pursuant to
Section 5 or 7, any term or condition within Section 5 or 7
which is in conflict with any term or condition of this
Section 8 shall supersede and control over any provision in
this Section 8 to the contrary.
8.7 Any award of the arbitrator may be entered in any court of
appropriate jurisdiction pursuant to Minn. Stat. ss.572.08 et
seq., which statutes, relating to arbitration, are
incorporated herein by reference.
8.8 The arbitrator shall not have the authority to award exemplary
or punitive damages.
8.9 Any award of the arbitrator shall be based upon applicable
law, but findings of fact and conclusions of law shall not be
submitted as part of any award.
9. GENERAL PROVISIONS.
9.1 SUCCESSORS AND ASSIGNS.
9.1.1 This Agreement shall be binding upon and shall inure
to the benefit of the Company, its successors and
assigns and the Company shall require any successor
or assign to expressly assume and agree to perform
this Agreement in the same manner and to the same
extent that the Company would be required to perform
it if no such succession or assignment had taken
place. The term "COMPANY" as used herein shall
include such successors (including a Surviving
Corporation) and assigns. The terms "SUCCESSORS" or
"SUCCESSORS AND ASSIGNS" as used herein each shall
mean a corporation or other entity acquiring all or
substantially all the assets and business of the
Company (including this Agreement) whether by
operation of law or otherwise.
9.1.2 Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the
Executive, his beneficiaries or legal
representatives, except by will or the laws of
descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the
Executive's legal personal representative.
9.2 NO OFFSETS. In no event shall any amount payable to Executive
pursuant to this Agreement be reduced for purposes of
offsetting, either directly or indirectly, any indebtedness or
liability of Executive to the Company.
9.3 NOTICES. All notices, requests and demands given to or made
pursuant hereto shall, except as otherwise specified herein,
be in writing and be personally delivered or mailed postage
prepaid, registered or certified US mail to any party at its
address set forth on the last page of this Agreement. Either
party may, by notice hereunder, designate a changed address.
Any notice hereunder shall be deemed effectively given and
received: (1) if personally delivered, upon delivery; or (2)
if mailed, on the registered date or the date stamped on the
certified mail receipt.
9.4 WITHHOLDING. To the extent required by any applicable law,
including, without limitation, any federal, state or local
income tax or excise tax law or laws, the Federal
20
<PAGE>
Insurance Contributions Act, the Federal Unemployment Tax Act
or any comparable federal, state or local laws, the Company
retains the right to withhold such portion of any amount or
amounts payable to Executive under this Agreement as the
Company (on the written advice of outside counsel) deems
necessary.
9.5 CAPTIONS. The various headings or captions in this Agreement
are for convenience only and shall not affect the meaning or
interpretation of this Agreement.
9.6 GOVERNING LAW. The validity, interpretation, construction,
performance, enforcement and remedies of or relating to this
Agreement, and the rights and obligations of the parties
hereunder, shall be governed by the substantive laws of the
State of Minnesota (without regard to the conflict of laws,
rules or statutes of any jurisdiction), and any and every
legal proceeding arising out of or in connection with this
Agreement shall be brought in the appropriate courts of the
State of Minnesota, each of the parties hereby consenting to
the exclusive jurisdiction of said courts for this purpose.
9.7 CONSTRUCTION. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision
of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining
provisions of this Agreement.
9.8 WAIVERS. No failure on the part of either party to exercise,
and no delay in exercising, any right or remedy hereunder
shall operate as a waiver thereof; nor shall any single or
partial exercise of any right or remedy hereunder preclude any
other or further exercise thereof or the exercise of any other
right or remedy granted hereby or by any related document or
by law.
9.9 MODIFICATION. This Agreement may not be modified or amended
except by written instrument signed by the parties hereto.
9.10 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties hereto in
reference to all the matters herein agreed upon. This
Agreement replaces in full all prior employment agreements or
understandings of the parties hereto, except stock option
agreements, and any and all such prior agreements or
understandings, except stock option agreements, are hereby
rescinded by mutual agreement.
9.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original
but all of which together will constitute one and the same
instrument.
9.12 SURVIVAL. The parties expressly acknowledge and agree that the
provisions of this Agreement which by their express or implied
terms extend beyond the termination of Executive's employment
hereunder, shall continue in full force and effect
notwithstanding Executive's termination of employment
hereunder or the termination of this Agreement, respectively.
9.13 RIGHT TO COUNSEL. Employee acknowledges he is aware of his
right to obtain independent legal counsel of his own choosing
with respect to any matter or issue made or created by or
under this Agreement. Execution of this Agreement by the
Executive is an acknowledgement by the Executive that either
he has had the opportunity to review this Agreement to his own
satisfaction, has read and understood the terms and conditions
of this Agreement, has consulted with an attorney and has
21
<PAGE>
had the terms and conditions of this Agreement satisfactorily
explained to him, or has waived the right to seek his own
independent counsel, but nonetheless, acknowledges that he
understands the terms of this Agreement, and this Agreement is
executed and delivered freely and voluntarily by the Executive
without any force or coercion from the Company or any other
third party.
IN WITNESS WHEREOF, the parties hereto have caused this Executive
Employment Agreement to be duly executed and delivered as of the day and year
first above written.
COMPANY:
FUNCO, INC., a Minnesota corporation
By: /s/ David R. Pomije, CEO
-----------------------------------------
Name David R. Pomije
------------------------------------
Its Chairman of the Board and
Chief Executive Officer
EXECUTIVE:
/s/ Jeffrey R. Gatesmith
-----------------------------------------
Jeffrey R. Gatesmith
Address: 4601 Colfax Avenue South
Minneapolis, Minnesota 55409
22
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000889664
<NAME> FUNCO INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-02-2000
<PERIOD-START> MAR-29-1999
<PERIOD-END> JUL-04-1999
<CASH> 4,282
<SECURITIES> 0
<RECEIVABLES> 2,602
<ALLOWANCES> 29
<INVENTORY> 30,662
<CURRENT-ASSETS> 40,757
<PP&E> 29,088
<DEPRECIATION> 17,048
<TOTAL-ASSETS> 53,963
<CURRENT-LIABILITIES> 16,091
<BONDS> 0
0
0
<COMMON> 60
<OTHER-SE> 39,635
<TOTAL-LIABILITY-AND-EQUITY> 53,963
<SALES> 42,505
<TOTAL-REVENUES> 42,505
<CGS> 28,133
<TOTAL-COSTS> 28,133
<OTHER-EXPENSES> 13,840
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 584
<INCOME-TAX> 229
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 355
<EPS-BASIC> .06
<EPS-DILUTED> .06
</TABLE>
